Explaining the Joint Behavior of Employment, Unemployment and Nonparticipation

Weh-Sol Moon

MPRA Paper from University Library of Munich, Germany

Abstract: This paper argues that existing matching models with unemployment as an active search and nonparticipation as an inactive search predict counterfactual results: the unemployment rate is at most two times as volatile as the employmentpopulation ratio; only 20 percent of the actual volatility of the unemployment rate is accounted for; and the labor market variables are perfectly correlated with each other. This paper proposes a modified matching model in which workers are classified after matches take place. The modified model generates the direct transition from nonparticipation to employment with no assumption that nonparticipation is an inactive search and without adjusting the time period of the model. The model also explains the important cyclical features of the U.S. labor market.

Keywords: Search and Matching; Business Cycles; Unemployment; Labor Force Participation (search for similar items in EconPapers)
JEL-codes: E24 E32 J64 (search for similar items in EconPapers)
Date: 2008-02, Revised 2008-05
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10583

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