If entitlement to UI benefits must be earned with employment, generous UI is an additional benefit to working, so, by itself, it promotes job creation. If individuals are risk neutral, then there is a UI contribution scheme that eliminates any effect of UI on employment decisions. As with...

Shimer (2005a) argues that the textbook equilibrium search model of unemployment explains less than 10% of the volatility in U.S. vacancies and unemployment when fluctuations are driven by productivity shocks. His paper as well as other recent work inspired by it are reviewed and extended here....

Propagation in equilibrium models of search unemployment is altered when vacancy costs require some external financing on frictional credit markets. The easing of financing constraints during an expansion as firms accumulate net worth reduces the opportunity cost for resources allocated to job...

I study the welfare cost of business cycles in a complete-markets economy where some people are more risk averse than others. Relatively more risk-averse people buy insurance against aggregate risk, and relatively less risk-averse people sell insurance. These trades reduce the welfare cost of...

In a sticky-price model with labor market search and habit persistence, Walsh (2005) shows that inertia in the interest rate policy helps to reconcile the inflation and output persistence with empirical observations for the US economy. We show that this finding is sensitive with regard to the...

This paper presents a DGE model in which aggregate price level inertia is generated endogenously by the optimizing behaviour of price-setting firms. All the usual sources of inertia are absent here ie., all firms are simultaneously free to change their price once every period and face no...

We build a New Keynesian model of the business cycle with sticky prices and real wage rigidities motivated by efficiency wages of the gift exchange variety. Compared to a standard sticky price model, our Fair Wage model provides an explanation for structural unemployment and generates more...

We study the effects of firing taxes on labor market outcomes. These taxes, more common in European markets, include all administrative and procedural costs incurred by the firm. As such, they are independent of the dismissed worker's skill level. We establish that, for young workers,...

New technology embodied in capital equipment can be adopted either through destruction of existing jobs and the creation of new ones or by renovation, updating the job's equipment. Under the assumption that the destruction of jobs generates worker layoffs, we show that higher productivity growth...

We present a competing-auction theory of the labor market, where job candidates auction their labor services to employers. An equilibrium matching function emerges which has many of the features commonly assumed, including constant returns to scale in large economies. The auction mechanism also...