Equilibrium search unemployment, endogenous participation, and labor market flows

Pietro Garibaldi, Etienne Wasmer

    Research output: Contribution to journalArticle

    Abstract

    The sustainability of welfare states requires high employment and high participation to raise the tax base. To analyze labor supply in a world with market frictions, we propose and solve a macro model of the labor market with unemployment and labor force participation as endogenous and distinct states. In our world, workers' decisions of participating are determined by an entry decision and an exit decision. A calibration of the model improves the usual representations of labor markets, since it quantitatively accounts for the observed flows between employment and nonparticipation. The paper investigates also the effect of payroll taxes and unemployment benefits on participation decisions. Taxes reduce entries and increase exits, whereas unemployment benefits, at a given job-finding rate, raise entries and have ambiguous effects on exits.

    Original languageEnglish (US)
    Pages (from-to)851-882
    Number of pages32
    JournalJournal of the European Economic Association
    Volume3
    Issue number4
    DOIs
    StatePublished - Jun 1 2005

    Fingerprint

    Labour market flows
    Search unemployment
    Endogenous participation
    Exit
    Unemployment benefits
    Participation
    Labour market
    Tax base
    Welfare state
    Labor supply
    Workers
    Tax
    Payroll tax
    Sustainability
    Calibration
    Market frictions
    Unemployment
    Macro model
    Labor force participation

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Cite this

    Equilibrium search unemployment, endogenous participation, and labor market flows. / Garibaldi, Pietro; Wasmer, Etienne.

    In: Journal of the European Economic Association, Vol. 3, No. 4, 01.06.2005, p. 851-882.

    Research output: Contribution to journalArticle

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