This project continues a line of research in the area of general equilibrium macroeconomics. The investigator has already offered a number of interesting solutions to various puzzles in the macroeconomics-labor area, and has developed techniques that greatly enhance the usefulness of representative agent models. This continued research has two main goals. The first is to extend the analysis of the labor market models with nonconvexities, and the second is to study models of the labor market which explicitly allow for heterogeneity . With regard to the first goal, the extensions include a comparison of different types of nonconvexities, decentralization of optimal resource allocations with particular attention paid to involuntary unemployment, incorporation of labor market flows, and a careful analysis of the dynamics relationships implied by nonconvexities. With respect to the second goal, the emphasis will be on introducing heterogeneity into aggregate models of the labor market. The forms of heterogeneity considered are skilled and unskilled labor, married males and married females, and adults and youths. The aim is to study models which will account for the large differences in cyclical employment fluctuations experienced by these groups. The analysis will focus on to what extent different specifications of technology and preferences can produce the observed phenomena.
