Elasticities of Labor Supply and Labor Force Participation Flows

Isabel Cairo, Shigeru Fujita and Camilo Morales-Jimenez

No 19-3, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: REVISED MARCH 2019 Using a representative-household search and matching model with endogenous labor force participation, we study the interactions between extensive-margin labor supply elasticities and the cyclicality of labor force participation flows. Our model successfully replicates salient business-cycle features of all transition rates between three labor market states, the unemployment rate, and the labor force participation rate, while using values of elasticities consistent with micro evidence. Our results underscore the importance of the procyclical opportunity cost of employment, together with wage rigidity, in understanding the cyclicality of labor market flows and stocks.

Keywords: Labor force participation; labor market transitions; labor supply elasticity; unemployment (search for similar items in EconPapers)
JEL-codes: E24 J64 (search for similar items in EconPapers)
Pages: 71 pages
Date: 2019-01-09
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Citations: View citations in EconPapers (7)

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Working Paper: Elasticities of Labor Supply and Labor Force Participation Flows (2019)
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DOI: 10.21799/frbp.wp.2019.03

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