Search in the Labor Market under Imperfectly Insurable Income Risk

Download or read book Search in the Labor Market under Imperfectly Insurable Income Risk written by Mr.Mauro Roca and published by International Monetary Fund. This book was released on 2009-09-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops a general equilibrium model with unemployment and noncooperative wage determination to analyze the importance of incomplete markets when risk-averse agents are subject to idiosyncratic employment shocks. A version of the model calibrated to the U.S. shows that market incompleteness affects individual behavior and aggregate conditions: it reduces wages and unemployment but increases vacancies. Additionally, the model explains the average level of unemployment insurance observed in the U.S. A key mechanism is the joint influence of imperfect insurance and risk aversion in the wage bargaining. The paper also proposes a novel solution to solve this heterogeneous-agent model.