The Labor Market and Macro Volatility: A Nonstationary General-Equilibrium Analysis

Robert Hall ()

No 11684, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The evolution of the aggregate labor market is far from smooth. I investigate the success of a macro model in replicating the observed levels of volatility of unemployment and other key variables. I take variations in productivity growth and in exogenous product demand (government purchases plus net exports) as the primary exogenous sources of fluctuations. The macro model embodies new ideas about the labor market, all based on equilibrium - the models I consider do not rest on inefficiency in the use of labor caused by an inappropriate wage. I find that non-standard features of the labor market are essential for understanding the volatility of unemployment. These models include simple equilibrium wage stickiness, where the sticky wage is an equilibrium selection rule. A second model based on modern bargaining theory delivers a different kind of stickiness and has a unique equilibrium. A third model posits fluctuations in matching efficiency that may arise from variations over time in the information about prospective jobs among job-seekers. Reasonable calibrations of each of the three models match the observed volatility of unemployment.

JEL-codes: E24 E52 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS
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Citations: View citations in EconPapers (7)

Published as Robert E. Hall, 2006. "The labor market and macro volatility: a nonstationary general-equilibrium analysis," Proceedings, Federal Reserve Bank of San Francisco.

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Journal Article: The labor market and macro volatility: a nonstationary general-equilibrium analysis (2006)
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