Journal Article

Intertemporal Labour Supply with Search Frictions

Claudio Michelacci and Josep Pijoan-Mas

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 3, pages 899-931
Published in print July 2012 | ISSN: 0034-6527
Published online November 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr042
Intertemporal Labour Supply with Search Frictions

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  • Demand and Supply of Labour
  • Macroeconomics: Consumption, Saving, Production, Employment, and Investment
  • Wages, Compensation, and Labour Costs

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Starting in the 1970's, wage inequality and the number of hours worked by employed U.S. prime-age male workers have both increased. We argue that these two facts are related. We use a labour market model with on-the-job search where by working longer hours individuals acquire greater skills. Since job candidates are ranked by productivity, greater skills not only increase worker's productivity in the current job but also help the worker to obtain better jobs. When job offers become more dispersed, wage inequality increases and workers work longer hours to obtain better jobs. As a result, average hours per worker in the economy increase. This mechanism accounts for around two-thirds of the increase in hours observed in data. Part of the increase is inefficient since workers obtain better jobs at the expense of other workers competing for the same jobs.

Keywords: Working hours; Wage inequality; Search; Human capital; Unemployment; J22; J31; E24

Journal Article.  16977 words.  Illustrated.

Subjects: Demand and Supply of Labour ; Macroeconomics: Consumption, Saving, Production, Employment, and Investment ; Wages, Compensation, and Labour Costs

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