Labor market search and capital accumulation: Some analytical results

Shouyong Shi, Quan Wen

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

This paper integrates labor market search into an intertemporal utility maximization framework and analytically solves for equilibrium dynamics. The integrated model improves upon a neoclassical model by generating the realistic hump-shaped response of output to a productivity shock and the counterclockwise dynamics of job vacancies and unemployment around the Beveridge curve. In contrast to a standard search model, our model endogenizes agents' reservation wage as the marginal rate of substitution between leisure and consumption, through which agents' intertemporal consumption decision directly affects the labor market behavior. As a result, even a permanent productivity shock generates non-monotonic dynamics in employment.

Original languageEnglish (US)
Pages (from-to)1747-1776
Number of pages30
JournalJournal of Economic Dynamics and Control
Volume21
Issue number10
DOIs
StatePublished - Aug 1997

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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