 The Cyclicality of the Opportunity Cost of EmploymentLoukas Karabarbounis and Gabriel Chodorow-Reich No 88, 2014 Meeting Papers from Society for Economic Dynamics Abstract: The flow opportunity cost of moving from unemployment to employment consists of foregone public benefits and foregone utility from non-working time relative to consumption. Recent research uses a relatively high opportunity cost to generate volatile unemployment fluctuations in search and matching models of the labor market. We argue that not only the level but also the cyclicality of the opportunity cost matters. Using detailed microdata, administrative data, and the structure of the search and matching model with concave and non-separable preferences, we document that the opportunity cost of employment is as procyclical as and more volatile than the marginal product of employment in the data. With our estimated cyclicality of the opportunity cost, the volatility of unemployment is essentially neutral with respect to the level of the opportunity cost, and far smaller than the volatility of unemployment in the data. We conclude that appealing to aspects of labor supply does not help search and matching models explain aggregate employment fluctuations. Date: 2014 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:88 Access Statistics for this paper More papers in 2014 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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