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Search in the Labor Market under Imperfectly Insurable Income Risk

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  • Mr. Mauro F Roca

Abstract

This paper develops a general equilibrium model with unemployment and noncooperative wage determination to analyze the importance of incomplete markets when risk-averse agents are subject to idiosyncratic employment shocks. A version of the model calibrated to the U.S. shows that market incompleteness affects individual behavior and aggregate conditions: it reduces wages and unemployment but increases vacancies. Additionally, the model explains the average level of unemployment insurance observed in the U.S. A key mechanism is the joint influence of imperfect insurance and risk aversion in the wage bargaining. The paper also proposes a novel solution to solve this heterogeneous-agent model.

Suggested Citation

  • Mr. Mauro F Roca, 2009. "Search in the Labor Market under Imperfectly Insurable Income Risk," IMF Working Papers 2009/188, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/188
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    References listed on IDEAS

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    Cited by:

    1. Bruce Preston & Mauro Roca, 2007. "Incomplete Markets, Heterogeneity and Macroeconomic Dynamics," NBER Working Papers 13260, National Bureau of Economic Research, Inc.

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