Labor Markets and Business Cycles [NOOK Book]

Overview

Labor Markets and Business Cycles integrates search and matching theory with the neoclassical growth model to better understand labor market outcomes. Robert Shimer shows analytically and quantitatively that rigid wages are important for explaining the volatile behavior of the unemployment rate in business cycles.

The book focuses on the labor wedge that arises when the marginal rate of substitution between consumption and leisure does not equal the marginal product of labor. ...

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Labor Markets and Business Cycles

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Overview

Labor Markets and Business Cycles integrates search and matching theory with the neoclassical growth model to better understand labor market outcomes. Robert Shimer shows analytically and quantitatively that rigid wages are important for explaining the volatile behavior of the unemployment rate in business cycles.

The book focuses on the labor wedge that arises when the marginal rate of substitution between consumption and leisure does not equal the marginal product of labor. According to competitive models of the labor market, the labor wedge should be constant and equal to the labor income tax rate. But in U.S. data, the wedge is strongly countercyclical, making it seem as if recessions are periods when workers are dissuaded from working and firms are dissuaded from hiring because of an increase in the labor income tax rate. When job searches are time consuming and wages are flexible, search frictions--the cost of a job search--act like labor adjustment costs, further exacerbating inconsistencies between the competitive model and data. The book shows that wage rigidities can reconcile the search model with the data, providing a quantitatively more accurate depiction of labor markets, consumption, and investment dynamics.

Developing detailed search and matching models, Labor Markets and Business Cycles will be the main reference for those interested in the intersection of labor market dynamics and business cycle research.

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What People Are Saying

Christopher Pissarides
This essential book offers an insightful and often provocative analysis of labor market responses to business cycle shocks, and develops new ways of looking at this issue. The careful integration of theory and data, of earlier business cycle theory with search and matching, as well as the critique of wage setting, open up new areas that will inspire researchers for many years to come.
Christopher Pissarides, London School of Economics and Political Science
Hall
Shimer's definitive account of the modern theory of labor market volatility presents many new results and deserves a prominent place on the bookshelf of every macroeconomist and labor economist.
Robert E. Hall, author of "Forward-Looking Decision Making"
Monika Merz
No other book on labor markets and business cycles treats search and matching models with the same detail. This will be a standard reference for advanced graduate students and researchers who are familiar with modern dynamic programming techniques.
Monika Merz, Bonn University
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Product Details

  • ISBN-13: 9781400835232
  • Publisher: Princeton University Press
  • Publication date: 4/12/2010
  • Series: CREI Lectures in Macroeconomics
  • Sold by: Barnes & Noble
  • Format: eBook
  • Edition description: Course Book
  • Pages: 192
  • File size: 9 MB

Meet the Author

Robert Shimer is the Alvin H. Baum Professor in Economics and the College at the University of Chicago.
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Table of Contents

Introduction vii
Preface ix

Chapter 1: The Labor Wedge 1
1.1 A Representative-Agent Model 1
1.2 Deriving the Labor Wedge 5
1.3 Measurement 7
1.4 Alternative Specification of Preferences 13
1.5 Preference Shocks 16
1.6 From Hours to Unemployment 18

Chapter 2: Benchmark Search Model: Neutrality 20
2.1 Steady State 21
2.2 Productivity Shocks 32
2.3 The Planner's Problem 41
2.4 Extensions 44
2.5 Discussion 56

Chapter 3: Real Effects of Productivity Shocks 58
3.1 General Preferences 59
3.2 Capital 75
3.3 Shocks to the Employment Exit Probability 104
3.4 Other Shocks 112

Chapter 4: Rigid Wages 113
4.1 Wage Indeterminacy 114
4.2 No Capital 116
4.3 Capital 124
4.4 Using Hours Data to Test the Model 144

Chapter 5: Looking Ahead 155
5.1 Theories of Rigid Wages 155
5.2 Empirical Evidence on Rigid Wages 157
5.3 Alternatives to the Matching Function 158
5.4 Relevance to Other Markets 159

Appendix A. Data 161
References 165
Author Index 171

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