Resurrecting the participation margin

Resurrecting the participation margin

by Monique Ebell

Book 873 of CEP discussion paper --

2008

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This paper considers a real business cycle model with search frictions in the labor market and labor supply which is elastic along the extensive (participation) margin. Previous authors have found that such models generate counterfactually procyclical unemployment and a positively-sloped Beveridge curve. This paper presents a calibrated model which does indeed generate countercyclical unemployment and a negatively-sloped Beveridge curve despite the presence of a participation margin.

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