This paper analyzes a business cycle model with labor market frictions as well as an extensive labor supply margin. There are exogenous aggregate shocks to productivity, the job finding rate, and the separation rate. Workers also face idiosyncratic productivity (wage) shocks that they cannot...

Commonly used frictional models of the labor market imply that changes in frictions have large effects on steady state employment and unemployment. We use a model that features both frictions and an operative labor supply margin to examine the robustness of this feature to the inclusion of a...

We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment,...

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...

Rogerson (1988).

We investigate the welfare effects of eliminating business cycles in a model with substantial consumer heterogeneity. The heterogeneity arises from uninsurable idiosyncratic uncertainty in preferences and employment status. We distinguish between short- and long-term unemployment. Long-term...