Search in the Labor Market under Imperfectly Insurable Income Risk

Author/Editor:

Mauro F Roca

Publication Date:

September 1, 2009

Electronic Access:

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Summary:

This paper develops a general equilibrium model with unemployment and noncooperative wage determination to analyze the importance of incomplete markets when risk-averse agents are subject to idiosyncratic employment shocks. A version of the model calibrated to the U.S. shows that market incompleteness affects individual behavior and aggregate conditions: it reduces wages and unemployment but increases vacancies. Additionally, the model explains the average level of unemployment insurance observed in the U.S. A key mechanism is the joint influence of imperfect insurance and risk aversion in the wage bargaining. The paper also proposes a novel solution to solve this heterogeneous-agent model.

Series:

Working Paper No. 2009/188

Subject:

Consumption Insurance Labor markets Unemployment Wages

English

Publication Date:

September 1, 2009

ISBN/ISSN:

9781451873351/1018-5941

Stock No:

WPIEA2009188

Pages:

37

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