Intertemporal Labor Supply with Search Frictions ∗


Starting in the 70’s, wage inequality and the number of hours worked by employed US prime age male workers have both increased. We argue that these two facts are related. We use a labor market model with on the job search where by working longer hours individuals acquire greater skills. Since job candidates are ranked by productivity, greater skills not only increase worker’s productivity in the current job but also help the worker to obtain better jobs. When job offers become more dispersed, wage inequality increases and workers work longer hours to obtain better jobs. As a result average hours per worker in the economy increase. This mechanism accounts for around two-thirds of the increase in hours observed in data. Part of the increase is inefficient since workers obtain better jobs at the expense of other workers competing for the same jobs. JEL classification: J22, J31, E24

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@inproceedings{Michelacci2011IntertemporalLS, title={Intertemporal Labor Supply with Search Frictions ∗}, author={Claudio Michelacci and Josep Pijoan-Mas and Marco Cozzi and Monika Merz and Makoto Nakajima and Hernan Ruffo}, year={2011} }