We build a model that incorporates both labor supply and frictions and use it to assess the effects of various tax and transfer programs on aggregate employment and unemployment. In particular, we assess the debate between Prescott and Ljungqvist and Sargent about the relative importance of...

We develop a model featuring search frictions and a nondegenerate labor supply decision along the extensive margin, and argue that it does a reasonable job of matching labor market flows between employment, unemployment and out of the labor force. Persistent idiosyncratic productivity shocks...

In this paper, we study the impact on the aggregate economy of changes in individual risk and insurance. To this end, we use the analytical framework developed in Heathcote, Storesletten and Violante (2008). Our main finding is that insurable risk increases TFP by improving the allocation of...

This paper extends the recent recursive contract literature on optimal unemployment insurance and optimal welfare-to-work programs in order to study the constrained-efficient dynamic contract between government and unemployed worker when a costly "training technology" is available. We first...