The Cyclicality of the Opportunity Cost of Employment

The flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to esti...

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Bibliographic Details
Published in:The Journal of political economy 2016-12, Vol.124 (6), p.1563-1618
Main Authors: Chodorow-Reich, Gabriel, Karabarbounis, Loukas
Format: Article
Language:English
Subjects:
Consumption
Economic theory
Employment
Labor market
Labour market
Opportunity cost
Opportunity costs
Political economy
Studies
Unemployment
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Summary:The flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels, eligibility, take-up, consumption by labor force status, hours, taxes, and preference parameters. The opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.
ISSN:0022-3808
1537-534X
DOI:10.1086/688876