Search in the Labor Market Under Imperfectly Insurable Income Risk

Mauro Roca ()

No 09/188, 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: Consumption; Economic models; Employment; Financial risk; Income; Income distribution; Insurance; Labor markets; Private savings; Private sector; Unemployment; Wage bargaining; Wages (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-ias and nep-lab
Date: 2009-09-02

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Persistent link: http://EconPapers.repec.org/RePEc:imf:imfwpa:09/188

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