Life-Cycle Equilibrium Unemployment

Arnaud Cheron (), Jean-Olivier Hairault () and Francois Langot ()

No 3396, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: This paper develops a life-cycle approach to equilibrium unemployment. Workers only differ respectively to their distance from deterministic retirement. A non age-directed search equilibrium is then typically featured by increasing (decreasing) firing (hiring) rates with age and a hump-shaped age profile for employment. Because of intergenerational inefficiencies, the Hosios condition no longer achieves efficiency. We then explore the optimal age-pattern of some policy tools to restore this efficiency. The optimal profile for employment subsidies should increase with age, whereas firing taxes and hirings subsidies would have to be hump-shaped. Lastly, we examine the robustness of our results. We show that age-directed recruitment policies cannot exist in equilibrium even if it would have been ex-ante possible, and that introducing endogenous search effort of unemployed workers reinforces our main results.

Keywords: job search; matching; life cycle (search for similar items in EconPapers)
JEL-codes: J22 J26 H55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-dge and nep-lab
Date: 2008-03
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