Equilibrium employment in a model of imperfect labor markets

Arbeitspapier

This paper presents a simple model of imperfect labor markets with endogenous labor market participation and home production. We show that a two-sector economy (home and market) implies a three-state labor market when labor market imperfections take the form of an irreversible entry cost incurred by workers. This simple framework brings several results. First, it delivers an expression for the employment rate and as side-products, a measure of the unemployment rate and the size of the labor force. Second, it rationalizes several empirical works on the definition of unemployment in labor force surveys. Third, it derives endogenously all flows between three labor market states. Fourth, a calibration of the model rationalizes differences in employment rates: in the U.S., we find a market productivity premium of +30% and market frictions of -15% compared to France. Finally, the model is a very simple reduced form of search models with which it is fully consistent: the irreversible entry cost is the opportunity cost of search and depends on aggregate conditions.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 950

Classification and Topics

• Classification: Wirtschaft ; Labor Force and Employment, Size, and Structure
• Subject: employment ; non-employment ; labor market participation ; frictions ; Erwerbstätigkeit ; Arbeitsmarkttheorie ; Unvollkommener Markt ; Dualer Arbeitsmarkt ; Heimarbeit ; Arbeitsplatzsuchmodell ; Arbeitslosigkeit ; Theorie ; Vereinigte Staaten ; Frankreich

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Garibaldi, Pietro ; Wasmer, Etienne
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2003

Further information

• Handle: http://hdl.handle.net/10419/20186
• Last update: 10.03.2025, 11:42 AM CET