A Three State Model of Worker Flows in General Equilibrium
We develop a simple model featuring search frictions and a nondegenerate labor supply decision along the extensive margin. The model is a standard version of the neoclassical growth model with indivisible labor with idiosyncratic shocks and frictions characterized by employment loss and employment opportunity arrival shocks. We argue that it is able to account for the key features of observed labor market flows for reasonable parameter values. Persistent idiosyncratic productivity shocks play a key role in allowing the model to match the persistence of the employment and out of the labor force states found in individual labor market histories.
The material in this paper was previously contained in a paper that circulated with the title "Labor Suuply in a Frictional Labor Market". We thank Nicola Pavoni and Naoki Shintoyo for useful comments as well as seminar participants at CEMFI, Columbia, Universitat Autonoma de Barcelona, USC, UCLA, the Atlanta Fed, Yale, UC Riverside, Queen's, Georgetown, Wharton, Toronto, Ryerson, Western Ontario, Stocholm School of Economics, IIES, University of Oslo, Concordia, Northern Illinois, Yonsei University and Korea University, and conference participants at the Labor Markets Conference at the IFS (2008), the Winter Institute of Macroeconomics 2009 (Tokyo), the Bewley Conference at UT Austin, and the 2009 SED (Istanbul). We thank Joe Song for excellent research assistance. Krusell and Rogerson acknowldege financial support from the NSF. The views expressed in this article are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Corresponding author: Richard Rogerson. Address for correspondence: Department of Economics, Arizona State University, Tempe, AZ 85287. Phone: 480-727-6671. Fax: 480-965-0748. Email: Richard.Rogerson@asu.edu The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May. citation courtesy of