Premium
Search and Rest Unemployment
Author(s) -
Alvarez Fernando,
Shimer Robert
Publication year - 2011
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta7686
Subject(s) - rest (music) , unemployment , economics , business cycle , labour economics , aggregate (composite) , key (lock) , production (economics) , econometrics , macroeconomics , computer science , medicine , cardiology , materials science , computer security , composite material
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.