TY - JOUR
T1 - Equilibrium search unemployment, endogenous participation, and labor market flows
AU - Garibaldi, Pietro
AU - Wasmer, Etienne
PY - 2005/6
Y1 - 2005/6
N2 - The sustainability of welfare states requires high employment and high participation to raise the tax base. To analyze labor supply in a world with market frictions, we propose and solve a macro model of the labor market with unemployment and labor force participation as endogenous and distinct states. In our world, workers' decisions of participating are determined by an entry decision and an exit decision. A calibration of the model improves the usual representations of labor markets, since it quantitatively accounts for the observed flows between employment and nonparticipation. The paper investigates also the effect of payroll taxes and unemployment benefits on participation decisions. Taxes reduce entries and increase exits, whereas unemployment benefits, at a given job-finding rate, raise entries and have ambiguous effects on exits.
AB - The sustainability of welfare states requires high employment and high participation to raise the tax base. To analyze labor supply in a world with market frictions, we propose and solve a macro model of the labor market with unemployment and labor force participation as endogenous and distinct states. In our world, workers' decisions of participating are determined by an entry decision and an exit decision. A calibration of the model improves the usual representations of labor markets, since it quantitatively accounts for the observed flows between employment and nonparticipation. The paper investigates also the effect of payroll taxes and unemployment benefits on participation decisions. Taxes reduce entries and increase exits, whereas unemployment benefits, at a given job-finding rate, raise entries and have ambiguous effects on exits.
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U2 - 10.1162/1542476054430807
DO - 10.1162/1542476054430807
M3 - Article
AN - SCOPUS:65349158752
SN - 1542-4766
VL - 3
SP - 851
EP - 882
JO - Journal of the European Economic Association
JF - Journal of the European Economic Association
IS - 4
ER -