Abstract
Recent demographic changes, for example, aging of the population, declining labor force participation of older workers and high displacement rates among older workers suggest that the life-cycle of workers has important implications for the aggregate labor market. In addition, increasing number of workers are retiring from the labor market due to leisure considerations implying that leisure plays an important role in their decision making process. The model presented here captures these aspects of the labor market by embedding a model of the labor market characterized by search and matching frictions, into an overlapping generations model with finitely lived agents. Two cases, the Baseline case and the True Retirement case, study the impact of leisure and job durability on the aggregate labor market. Leisure affects the bargaining power of workers and job durability affects the profits of firms, which in turn affects firm entry. This study also addresses the lump-of-labor fallacy in a general equilibrium framework.
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