Household Search and the Aggregate Labour Market

Jochen Mankart and Rigas Oikonomou

The Review of Economic Studies, 2017, vol. 84, issue 4, 1735-1788

Abstract: We develop a theoretical model with labour market frictions, incomplete financial markets, and with households which have two members. Households face unemployment risks, but their members adjust their labour supplies to insure against unemployment. We use the model to explain the cyclical properties of aggregate employment and participation. As in the U.S. data, the model predicts that the participation rate (the fraction of individuals that want jobs) is not strongly correlated with aggregate economic activity. This property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions, when we assume bachelor households or households with infinitely many members (complete markets). In the two-member household model and in the data, primary earners are always in the labour force, secondary earners have a mildly countercyclical participation rate, and a mildly procyclical employment rate. Their behaviour insures the household against unemployment risks.

Keywords: Heterogeneous agents; Family self insurance; Labour market search; Aggregate fluctuations (search for similar items in EconPapers)
JEL-codes: E24 E25 E32 J10 J64 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Household search and the aggregate labor market (2015)
Working Paper: Household Search and the Aggregate Labor Market (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:84:y:2017:i:4:p:1735-1788.

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