Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows

Pietro Garibaldi and Etienne Wasmer

Post-Print from HAL

Abstract: The sustainability of Welfare States requires high employment/high participation to raise the tax base and avoid distortions. To analyse labour market participation decisions in a world with market frictions, we propose and solve a three-state macro model of the labour market. We show that workers' decisions of entering into the labour market and exiting from the labour market are fundamentally different in the presence of frictions: irreversible costs paid by workers at the entry level imply that labour supply is determined by two margins, the entry and the exit margins. On the normative point of view, we show that the existence of two margins alters significantly the conventional effects of payroll taxes and unemployment benefits. On the positive point of view, our model rationalizes the existence of most labour market flows and of 'marginally attached workers'. Furthermore, a calibration improves the usual representations of labour markets.

Date: 2005-06
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01020784
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101)

Published in Journal of the European Economic Association, 2005, 3 (4), pp.851-882. ⟨10.1162/1542476054430807⟩

Downloads: (external link)
https://sciencespo.hal.science/hal-01020784/document (application/pdf)

Related works:
Working Paper: Equilibrium Search Unemployment, Endogenous Participation and Labor Market Flows (2005)
Working Paper: Equilibrium Search Unemployment, Endogenous Participation and Labour Market Flows (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01020784

DOI: 10.1162/1542476054430807

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().