Working Papers, Konjunkturinstitutet - National Institute of Economic Research
The Labor Market in KIMOD
Abstract: This is a description of the labor market sector in the
dynamic medium term macroeconomic model KIMOD developed at the National
Institute of Economic Research (NIER).
Unemployment is caused by
matching inefficiencies of the type described by C. Pissarides in
Equilibrium Unemployment, 2000. Unemployed workers and firms with vacant
jobs are engaged in costly search for a profitable match. Total hirings
from unemployment into employment depend on the number of unemployed
workers and vacant jobs. Flows into unemployment come from new entrants
into the labor force and from exogenous separation of matched job - worker
Wages are set in individual negotiations between the worker and
the firm in a match, according to the Nash bargaining solution. Some
inertia in real wages follows from unemployment benefits being indexed to
the previous period?s market wage.
These features lead to an
unemployment rate which adjusts with some inertia towards a long run
equilibrium level. Turnover costs provide some incentives for labor
hoarding by firms during temporary downturns. The effects on the economy
from variations in hours worked due to variations in the labor force are
distinct from those due to variations in average working time.
model is used to estimate the equilibrium unemployment level in Sweden from
Swedish labor market data on unemployment and vacancies
Keywords: labor market; matching; modeling; search; unemployment; wage bargaining; (follow links to similar papers)
JEL-Codes: C51; C78; (follow links to similar papers)
35 pages, February 1, 2004
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