scholarly journals The aggregate effects of labor market frictions

10.3982/qe916 ◽  
2019 ◽  
Vol 10 (3) ◽  
pp. 803-852 ◽  
Author(s):  
Michael W. L. Elsby ◽  
Ryan Michaels ◽  
David Ratner
Keyword(s):  
Labor Market ◽  
The United States ◽  
Market Frictions ◽  
Propagation Mechanism ◽  
Aggregate Shocks ◽  
Employment Dynamics ◽  
Canonical Class ◽  
Labor Market Frictions ◽  
Standard Models ◽  
Aggregate Effects

Labor market frictions are able to induce sluggish aggregate employment dynamics. However, these frictions have strong implications for the source of this propagation: they distort the path of aggregate employment by impeding the flow of labor across firms. For a canonical class of frictions, we show how observable measures of such flows can be used to assess the effect of frictions on aggregate employment dynamics. Application of this approach to establishment microdata for the United States reveals that the empirical flow of labor across firms deviates markedly from the predictions of canonical labor market frictions. Despite their ability to induce persistence in aggregate employment, firm‐size flows in these models are predicted to respond aggressively to aggregate shocks, but react sluggishly in the data. The paper therefore concludes that the propagation mechanism embodied in standard models of labor market frictions fails to account for the sources of observed employment dynamics.

scholarly journals Trade and Frictional Unemployment in the Global Economy

2020 ◽  
Vol 18 (6) ◽  
pp. 2869-2921 ◽  
Author(s):  
Céline Carrère ◽  
Anja Grujovic ◽  
Frédéric Robert-Nicoud
Keyword(s):  
United States ◽  
Labor Market ◽  
Global Economy ◽  
The United States ◽  
Market Frictions ◽  
Unemployment Benefits ◽  
Trade Model ◽  
Labor Market Frictions ◽  
Trade Opening ◽  
Employment Data

Abstract We develop a multicountry, multisector trade model featuring risk-averse workers, labor market frictions, unemployment benefits, and equilibrium unemployment. Trade opening leads to a reduction in unemployment when it simultaneously raises welfare and reallocates labor toward sectors with lower-than-average labor market frictions. We then estimate and calibrate the model using employment data from 31 OECD countries and worldwide trade data. Finally, we quantify the potential unemployment, real wage, and welfare effects of repealing NAFTA and raising bilateral tariffs between the United States and Mexico to 20%. This policy would increase unemployment by 2.4% in the United States and 48% in Mexico.

scholarly journals Implications of Labor Market Frictions for Risk Aversion and Risk Premia

2020 ◽  
Vol 12 (2) ◽  
pp. 194-240
Author(s):  
Eric T. Swanson
Keyword(s):  
Labor Market ◽  
Risk Aversion ◽  
Labor Markets ◽  
The United States ◽  
Risk Premia ◽  
Market Frictions ◽  
Flexible Labor ◽  
Asset Value ◽  
Labor Market Frictions ◽  
Frictional Labor Markets

A flexible labor margin allows households to absorb asset value shocks with changes in hours worked, altering the households’ attitudes toward risk (Swanson 2012). This paper analyzes how frictional labor markets affect that analysis. Risk aversion is higher (i) in countries with more frictional labor markets, (ii ) in recessions, and (iii ) for households that have more difficulty finding a job. Labor market frictions in Europe are large enough to raise risk aversion in those countries. Nevertheless, risk aversion in the United States and Europe is much closer to the frictionless benchmark in Swanson (2012) than to traditional, fixed-labor measures. (JEL D11, D81, E24, E32, J22)

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