Departmental Bulletin Paper Employment and Hours over the Business Cycle in a Model with Search Frictions

Kudoh, Noritaka  ,  Miyamoto, Hiroaki  ,  Sasaki, Masaru

(E17-2) 2017-05 , 名古屋大学大学院経済学研究科附属国際経済政策研究センター
This paper presents a labor market search-matching model with multi-worker firms to investigate how firms utilize employment and hours of work over the business cycle. Each firm and its employees bargain over an earnings schedule that maps hours into earnings, and this schedule determines the costs of utilizing the two margins of labor adjustment. We calibrate the model for the Japanese labor market, in which fluctuations in hours of work account for 79 percent of the variations in the aggregate labor input. We find that the aggregate labor input in the model is as volatile as that in the data, and is 25 times as volatile as that in the model without hours of work. Interestingly, with bargained hours of work, the model generates significantly small fluctuations in employment, unemployment, and vacancies, and is outperformed by the model with constant hours of work.

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