March 7, 2017, 17:00–18:30
Room MS001
Macroeconomics Seminar
Abstract
Learning by doing in home production is introduced into a stochastic directed search model. Workers' labor supply choices affect skill accumulation in both the home and market sectors. The optimal search behavior implies that average reemployment wages are only mildly sensitive to unemployment duration while the job finding probability is highly sensitive to duration, two facts which are documented empirically. The cali- brated model is used to decompose the declining hazard out of unemployment, implying a nontrivial role for duration dependence due to skill changes. The addition of aggre- gate shocks leads to an asymmetric response of the unemployment rate during and after recessions, with more severe recessions resulting in stronger hysteresis in labor force participation.