This paper investigates the age-dependency of participation and unemployment by integrating job search with intertemporal optimizing behavior of finitely-lived households. We find that search frictions and tax rates distort the decisions of older workers to a much larger extent than that of young workers. This finding provides an explanation of the observed fall of participation rates of elder workers as a result of the post-war increase in tax rates and replacement rates. We show that the age pattern of search unemployment does not match observed unemployment and we propose a new concept of ‘voluntary’ unemployment that agrees well with observations.

Search frictions, labor supply, life cycle, retirement, unemployment
Intertemporal Consumer Choice; Life Cycle Models and Saving (jel D91), Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. (jel J31), Unemployment: Models, Duration, Incidence, and Job Search (jel J64)
hdl.handle.net/1765/1091
Research Centre for Economic Policy (OCFEB)

Bettendorf, L.J.H, & Broer, D.P. (2004). Lifetime labor supply in a search model of unemployment. Retrieved from http://hdl.handle.net/1765/1091