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Income Effects and the Cyclicality of Job Search Effort

Alper Çenesiz and Luís Guimarães ()
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Luís Guimarães: cef.up, Faculdade de Economia, Universidade do Porto

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: The canonical matching model predicts procyclical job search effort while the evidence suggests otherwise. In this paper, we assess whether introducing income effects into a model with matching frictions leads to acyclical or countercyclical job search effort as in data. We find that income effects improve the cyclical behavior of job search effort because they make the value of leisure procyclical. But the procyclicality of the value of leisure also magnifies the procyclicality of the wage. Unless we make unsound assumptions to mute this effect on the wage, the model generates either acyclical or procyclical unemployment. Thus, our paper casts doubt on the role of income effects in generating cyclical patterns of job search effort consistent with the data.

Keywords: Matching Frictions; Job Search Effort; Income Effects. (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
Date: 2018-05, Revised 2019-04
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