On the cyclical behavior of employment, unemployment and labor force participation
In this paper I evaluate to what extent a real business cycle (RBC)
model that incorporates search and home production decisions can simultaneously
account for the observed behavior of employment, unemployment and out-of-thelabor-
force. This contrasts with the previous RBC literature, which analyzed
employment or hours fluctuations either by lumping together unemployment and
out-of-the-labor-force into a single non-employment state or by assuming a fixed
labor force. Once the three employment states are explicitly introduced I find
that the RBC model generates highly counterfactual labor market dynamics.
