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Working Paper, No. 2002-12, 2002
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.
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