The Cyclicality of the Opportunity Cost of Employment

Abstract

anonymous referees, and numerous seminar participants. Much of this paper was written while Gabriel Chodorow-Reich was visiting the Julis-Rabinowitz Center at Princeton University. Loukas Karabarbounis thanks Chicago Booth for summer financial support. The Appendix and dataset that accompany this paper are available at the authors' webpages. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Macroeconomics and Household Heterogeneity

“…36 This is because we use cash at hand and the persistent income state as state variables in the individual household dynamic programming problem. 37 For the computation of the distributional statistics we simulate a panel of households. In this simulation, realizations of the persistent shock remain on the grid, but the transitory shock is drawn from a normal distribution and thus is not restricted to fall on one of the quadrature points.…”

Labor market participation, unemployment and monetary policy

“…As pointed out by Chodorow-Reich and Karabarbounis (2013), this fact implies that a high relative average value of non-work to work activity does not necessarily address the Shimer critique, contrary to the proposal by Hagedorn and Manovskii (2008). However, in the endogenous participation model the household chooses participation so as to tie the marginal rate of substitution between market and home goods to labor market tightness, which indeed captures the opportunity cost of home producing.…”

Wealth and Volatility

“…In constructing our wealth ranking, we measure wealth as net worth in period t relative to a measure of consumption expenditure around period t. We focus on net worth relative to consumption (as opposed to just net worth) as this ratio better captures the extent to which a household can shield consumption from income declines, and is thus more closely connected to the strength of households' precautionary motive. 20 Although the levels of many of these statistics differ across data sets (due in part to different coverage, sample design, and exact question asked), differences between rich and poor are comparable across the two data sets. With respect to demographics, the wealth-poor group is younger and less educated.…”