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Search Frictions and the Labor Wedge

This paper shows that labor market search frictions do not explain fluctuations in the labor wedge per se. However, the introduction of extensive and intensive margin clarifies that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly...

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Bibliographic Details
Main Author: Tasci, Murat
Other Authors: Pescatori, Andrea
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2011
Series:IMF Working Papers
Subjects:
Business Cycles
Labour; Income Economics
Employment; Economic Theory
Unemployment: Models, Duration, Incidence, And Job Search
Labor Market Frictions
Labor Markets
Aggregate Labor Productivity
Unemployment
Demand And Supply Of Labor: General
Aggregate Human Capital
Labor
Cycles
Labor Economics: General
Economic Growth
Labor Market
Macroeconomics
Wages
Business Fluctuations
Prices, Business Fluctuations, And Cycles: General (includes Measurement And Data)
Intergenerational Income Distribution
Employment
Labor Economics
United States
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper shows that labor market search frictions do not explain fluctuations in the labor wedge per se. However, the introduction of extensive and intensive margin clarifies that measuring the MRS in terms of total hours artificially introduces procyclicality in the MRS. When the MRS is correctly measured in terms of hours per worker, the labor wedge obtained is less variable than the one of the competitive model. Finally, we show that it is possible to measure a strongly procyclical labor wedge when the actual data generating process is a search model that allows for movements in both margins
Physical Description:29 pages
ISBN:9781455262403

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