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Unemployment volatility in a behavioural search model
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Martin, Chris and Wang, Bingsong (2018) Unemployment volatility in a behavioural search model. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS), 2018 (1179). (Unpublished)
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
Recent evidence that the opportunity cost of employment is pro cyclical implies that existing models based around search frictions in the labour market cannot match the large volatilities of unemployment and vacancies observed in the data. In this paper, we incorporate insights from behavioural economics into the search frictions framework. The resultant model can match observed volatilities even if the opportunity cost is strongly pro cyclical. The key mechanism in the model is that the pro-cyclicality of the opportunity cost has a limited impact on the reference wage of workers; this feeds through into a limited volatility of the wage and so to a large
unemployment volatility
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Economics -- Psychological aspects, Unemployment, Labor supply -- Mathematical models, Job hunting, Job vacancies -- Mathematical models | ||||
Series Name: | Warwick economics research papers series (WERPS) | ||||
Publisher: | University of Warwick. Department of Economics | ||||
Place of Publication: | Coventry | ||||
ISSN: | 0083-7350 | ||||
Official Date: | October 2018 | ||||
Dates: |
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Volume: | 2018 | ||||
Number: | 1179 | ||||
Number of Pages: | 24 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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