The cyclicality of the opportunity cost of employment

Gabriel Chodorow-Reich, Loukas Karabarbounis

Research output: Contribution to journalArticlepeer-review

37 Scopus citations

Abstract

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, takeup, 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.

Original languageEnglish (US)
Pages (from-to)1563-1618
Number of pages56
JournalJournal of Political Economy
Volume124
Issue number6
DOIs
StatePublished - Dec 2016

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