Aggregate Implications of Indivisible Labor, Incomplete Markets, and Labor Market Frictions

Per Krusell, Toshihiko Mukoyama, Richard Rogerson and Aysegul Sahin

No 13871, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes a model that features frictions, an operative labor supply margin, and incomplete markets. We first provide analytic solutions to a benchmark model that includes indivisible labor and incomplete markets in the absence of trading frictions. We show that the steady state levels of aggregate hours and aggregate capital stock are identical to those obtained in the economy with employment lotteries, while individual employment and asset dynamics can be different. Second, we introduce labor market frictions to the benchmark model. We find that the effect of the frictions on the response of aggregate hours to a permanent tax change is highly non-linear. We also find that there is considerable scope for substitution between "voluntary" and "frictional" nonemployment in some situations.

JEL-codes: E2 J2 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Note: EFG
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Citations: View citations in EconPapers (35)

Published as Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2008. "Aggregate implications of indivisible labor, incomplete markets, and labor market frictions," Journal of Monetary Economics, Elsevier, vol. 55(5), pages 961-979, July.

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