Labor Force Participation and General Equilibrium Efficiency in Search and Matching Models (with David M. Arseneau)
Abstract:
We provide a characterization of general-equilibrium efficiency in the standard labor search and matching framework. The efficiency condition builds on the well-known Hosios condition for labor-market efficiency, which is derived in partial-equilibrium models of the labor market. What makes our analysis general equilibrium is that we consider a labor force participation decision, a margin absent in many models of the labor market. The efficiency condition we develop has a simple interpretation in terms of marginal rates of substitution and marginal rates of transformation; it also provides a criterion by which general equilibrium search models can measure the attainment of efficiency, as well as provides a new basis for empirical tests of labor-market efficiency.
PDF file March 2009 version
|
|