Labor Markets and Business Cycles

By Robert Shimer. 2010

241 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b9ad4e6ba0d39ad9ef38c997ce8532dcaed825c1

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In Economics and Econometrics

Citations in the corpus

Unemployment in an Estimated New Keynesian Model (2012, unknown): “, Chari, Kehoe, and McGrattan 2007; Shimer 2010). Note, however, that the concept of the labor wedge often used in the literature refers to the gap between the marginal rate of substitution and the marginal product of labor (as opposed to the wage). As a result (and despite its name) it captures var”
Unemployment Fiscal Multipliers (2010, unknown): “ct + it + Et f t;t+1Bt+1g wtnt + bu (1 nt) + rk;tkt +Bt + t t; (33)”
Enforcement of Labor Regulation and Informality (2011, unknown): “In our paper we abstract from labor market frictions, central in the latter set of papers, and in much recent work on models of the labor market (Shimer, 2010).”
Countercyclical Restructuring and Jobless Recoveries (2012, background): “Recent work by Valetta and Kuang (2010) and Barnichon and Figura 4Also see Aaronson et. al., 2004; Groshen and Potter, 2003; Shimer, 2010.”
Wage rigidities and jobless recoveries (2012, background): “I augment the neoclassical growth model with a recruiting technology through which a firm uses some of its employees to attract unemployed workers (Shimer, 2010).”
Recessions and the Costs of Job Loss (2011, unknown): “See, for example, Shimer (2004, 2010), Hall (2005), Gertler and Trigari (2009), and Kennan (2009).”
Learning from Prices: Public Communication and Welfare (2010, unknown): “Then there exists such that this increase is welfare de-(w , w )a v creasing if and only if .d 1 f Away from the cashless limit and when , the conditionf ≥ 1 d 1 f 20 Even though welfare is no longer separable in the CES case, the decentralized economy uses information efficiently when taking the…”
Uncertainty, Productivity and Unemployment in the Great Depression (2011, result): “This is surprising given the recent finding by Shimer (2010) that search models without wage rigidity cannot generate large fluctuations in the labor wedge.”
Monetary Policy According to HANK (2018, methodology): “This is a simple and commonly used strategy for incorporating sticky wages (see e.g. Shimer, 2010).”