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Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation

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  • Moon, Weh-Sol

Abstract

This paper argues that existing matching models with unemployment as an active search and nonparticipation as an inactive search predict counterfactual results: the unemployment rate is at most two times as volatile as the employmentpopulation ratio; only 20 percent of the actual volatility of the unemployment rate is accounted for; and the labor market variables are perfectly correlated with each other. This paper proposes a modified matching model in which workers are classified after matches take place. The modified model generates the direct transition from nonparticipation to employment with no assumption that nonparticipation is an inactive search and without adjusting the time period of the model. The model also explains the important cyclical features of the U.S. labor market.

Suggested Citation

  • Moon, Weh-Sol, 2008. "Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation," MPRA Paper 10583, University Library of Munich, Germany, revised May 2008.
    • Handle: RePEc:pra:mprapa:10583
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    References listed on IDEAS

    as
    1. Christian Haefke & Michael Reiter, 2006. "Endogenous Labor Market Participation and the Business Cycle," Computing in Economics and Finance 2006 383, Society for Computational Economics.
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    6. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    7. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-959, November.
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    More about this item

    Keywords

    Search and Matching; Business Cycles; Unemployment; Labor Force Participation;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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