A note on the labour market volatility puzzle: the role of endogenous participation

This article studies the effects of endogenous participation of marginally attached workers on wage dynamics and hence on the unemployment fluctuations in a stylized search theoretic model. It shows that endogenous participation of these workers induces a countercyclical component in the wage equation under Nash bargaining. As a result, the elasticity of wage with respect to productivity becomes smaller and hence the model can generate larger unemployment fluctuations, compared to the textbook model. With careful calibration, I show that the model well captures the wage dynamics and can explain the unemployment and job openings volatility reasonably well.

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Publication Details

Journal
Applied Economics
Published
2024-08-20
DOI
https://doi.org/10.1080/00036846.2024.2388310
Primary Topic
Labor market dynamics and wage inequality
Type
article
Field-Weighted Citation Impact
0.00
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article

A note on the labour market volatility puzzle: the role of endogenous participation

Lifang Xu
Applied Economics
Labor market dynamics and wage inequality
article

A note on the labour market volatility puzzle: the role of endogenous participation

Lifang Xu
article en

Abstract

This article studies the effects of endogenous participation of marginally attached workers on wage dynamics and hence on the unemployment fluctuations in a stylized search theoretic model. It shows that endogenous participation of these workers induces a countercyclical component in the wage equation under Nash bargaining. As a result, the elasticity of wage with respect to productivity becomes smaller and hence the model can generate larger unemployment fluctuations, compared to the textbook model. With careful calibration, I show that the model well captures the wage dynamics and can explain the unemployment and job openings volatility reasonably well.

Applied EconomicsVol. 57(45)
Shanghai National Accounting Institute (CN)
Decent work and economic growth
Openalex Percentile: Top 83%
Labor market dynamics and wage inequality
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