review2 - A Model of Labor Flows Employment: E Employment...

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Unformatted text preview: A Model of Labor Flows Employment: E Employment Rate: E / Labor Force Unemployment: U Unemployment Rate: U / Labor Force Labor Force: E + U 1 e Labor Forc e Labor Forc = + U E Separation rate: probability of losing job: s Separation flow: E s Job finding rate: probability of new job: f Job finding flow: U f Equilibrium U f E s = e Labor Forc e Labor Forc U f E s = = - e Labor Forc e Labor Forc 1 U f U s Unemployment Rate: e Labor Forc U u ) ( ) ( ) 1 ( f s s u u f s s fu u s + = + = =- Increased separation rate increased u Sectoral shifts Demographic factors (age, etc.) Increased job finding rate decreased u Unemployment benefits Productive job search Job search frictions wage expectations Application: Rising unemployment rate in the 1970s Higher fraction of younger workers Labor Demand 3 2 3 1 L K A Y = 3 1 3 1 3 2- = L K A MPN MPN K A L 3 1 3 1 3 2 = ( 29 w K A L d 3 1 3 1 3 2 = K w A L d 3 3 2 = Labor Supply ) , ( w L L s s = Labor Supply and Labor Demand w d L : nd Labor Dema s L : Supply Labor L Wage Employment Present Value Calculations T i ) 1 ( Value Future Value scounted Present Di + = Multi-payment Present Values...
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review2 - A Model of Labor Flows Employment: E Employment...

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