Search and Rest Unemployment / Fernando Alvarez, Robert Shimer.

Format:

Book

Author/Creator:

Alvarez, Fernando.

Contributor:

National Bureau of Economic Research.

Shimer, Robert.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13772.

NBER working paper series no. w13772

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This paper extends Lucas and Prescott's (1974) search model to develop a notion of rest unemployment. The economy consists of a continuum of labor markets, each of which produces a heterogeneous good. There is a constant returns to scale production technology in each labor market, but labor productivity is continually hit by idiosyncratic shocks, inducing the costly reallocation of workers across labor markets. Under some conditions, some workers may be rest-unemployed, waiting for local labor market conditions to improve, rather than engaged in time consuming search. The model has distinct notions of unemployment (moving to a new labor market or waiting for labor market conditions to improve) and inactivity (enjoying leisure while disconnected from the labor market). We obtain closed-form expressions for key aggregate variables and use them to evaluate the model. Quantitatively, we find that in the U.S. economy many more people may be in rest unemployment than in search unemployment.

Notes:

Print version record

February 2008.