We are grateful for comments by Daron Acemoglu, Gadi Barlevy, Morten Ravn, Marcelo Veracierto, two anonymous referees, the editor, and numerous seminar participants, and for research assistance by Lorenzo Caliendo. This research is supported by a grant from the National Science Foundation.
Search and Rest Unemployment
Article first published online: 14 JAN 2011
© 2011 The Econometric Society
Volume 79, Issue 1, pages 75–122, January 2011
How to Cite
Alvarez, F. and Shimer, R. (2011), Search and Rest Unemployment. Econometrica, 79: 75–122. doi: 10.3982/ECTA7686
- Issue published online: 14 JAN 2011
- Article first published online: 14 JAN 2011
- Manuscript received January, 2008; final revision received June, 2010.
- industry wages;
This paper develops a tractable version of the Lucas and Prescott (1974) search model. Each of a continuum of industries produces a heterogeneous good using a production technology that is continually hit by idiosyncratic shocks. In response to adverse shocks, some workers search for new industries while others are rest unemployed, waiting for their industry's condition to improve. We obtain closed-form expressions for key aggregate variables and use them to evaluate the model's quantitative predictions for unemployment and wages. Both search and rest unemployment are important for understanding the behavior of wages at the industry level.