Search in the Labor Market under Imperfectly Insurable Income Risk

Mauro Roca

No 2009/188, IMF Working Papers from International Monetary Fund

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.

Keywords: WP; unemployment insurance; labor market; replacement ratio (search for similar items in EconPapers)
Pages: 37
Date: 2009-09-01
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Citations: View citations in EconPapers (1)

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