Labor market dynamics when (un)employment is a social norm
Demetris Koursaros ()
Journal of Economic Behavior & Organization, 2017, vol. 134, issue C, 96-116
This paper proposes a new Keynesian model with search and matching frictions in the labor market that can account for the cyclicality and persistence of vacancies, unemployment, job creation, inflation and the real wage, after a monetary shock. Motivated by evidence from psychology, unemployment is modeled as a social norm. The norm is defined here as the belief that individuals in society prioritize, or should prioritize the search for gainful employment, whereas those who do not are perceived as outside the norm and, consequently, stigmatized. Households pressure the unemployed to find jobs: the fewer unemployed workers there are, the more supporters the norm has and therefore the greater the pressure and psychological cost experienced by each jobseeker. As this psychological cost is procyclical, it hinders the wage from absorbing most of the effect of the shock. Thus, the model is able to capture the high volatility of vacancies and unemployment observed in the data, accounting for the Shimer puzzle. The paper also departs from the literature by introducing price rigidity in the labor market, inducing additional inertia and persistence in inflation and the real wage after a monetary shock. The model's responses after a monetary shock are in line with the responses obtained from a VAR on US data.
Keywords: Social norm; Unemployment; Psychological cost of unemployment; Vacancies; DSGE (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:134:y:2017:i:c:p:96-116
Access Statistics for this article
Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.
More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().