Fluctuations in the equilibrium rate of unemployment can only be understood within a of the natural or equilibrium rate. It is not enough to say that unemployment is the difference between supply and demand in the labor market, though of course it always will be. In equilibrium, no participants in the market can have an unexploited opportunity to make themselves better off. At the equilibrium unemployment rate, employers cannot obtain labor at lower cost by offering work at below the market wage to the unemployed. Unemployed workers cannot raise their effective real incomes by taking lower wages in exchange for immediate employment. The task of the is to explain why any unemployment remains at all when these conditions are satisfied. Part of this problem has been studied in detail in the search theory of unemployment -- once a worker becomes unemployed, it is reasonably well understood why the worker does not become employed again immediately. The of why people become unemployed in the first place is less well developed and is the main concern of this paper. Most of the unemployed are looking for new work because their previous jobs ran out. Consequently, the main ingredient of a of the flow of workers into unemployment is a of the duration of employment. Such a is developed here, along reasonably standard lines.

Rather than start directly on the sensitive issue of the economic role of unemployment, I would like to spend some time first on a parallel question of rather less social importance, and then draw some analogies to the problem of unemployment. The phenomenon I will examine is the time people spend idle at airports. Ultimately, I will compare the analysis of idle airport time with the analysis of idle time in the labor market. In any airport at any time, numerous people are waiting for something to happen. These people are not doing anything particularly constructive with their time-they are waiting because they arrived early, because their planes have been delayed, or because they are in a queue for the next available flight. An observer who knew nothing about the purpose of an airport would be puzzled by the chronic idleness of most of the people there. The observer might gather data on airport idleness along the following lines. At any given time, 0.2 percent of the population is idle at the airport. The idle population turns over frequentlythe median duration of a spell at the airport is 35 minutes. But long spells account for the bulk of idleness-half of all idleness occurs in the course of spells which will last 5 hours or more. Airport idleness is highly concentrated in the population. In a given year, three-quarters of the population are never idle at the airport; 5 percent of the population incurs half of all idleness. A predictable seasonal pattern is apparent-idleness reaches sharp peaks at Thanksgiving, Christmas, and Easter, plus a broad peak in the summer. Were it quantitatively more significant, airport idleness would be a social issue. The airport idle are not usually engaged in useful activities. Few of them spend time trying to locate earlier flights, nor do many of them try to accelerate their movement by offering to pay a higher fare. A surprisingly large fraction do nothing more than sit. The opportunity cost of time spend idle at the airport is essentially zero, it would appear.

Though the U.S. labor market is justly notorious for high turnover and consequent high unemployment, it also provides stable, near-lifetime employment to an important fraction of the labor force. This paper investigates patterns of job duration by age, race, and sex, with the following major conclusions: 1. The typical worker today is holding a job which has lasted or will last about eight years. Over a quarter of all workers are holding jobs which will last twenty years or more. Sixty percent hold jobs which will last five years or more. 2. The jobs held by middle-aged workers with more than ten years of tenure are extremely stable. Over the span of a decade, only twenty to thirty percent come to an end. 3. Among workers aged thirty and above, about forty percent are currently working in jobs which eventually will last twenty years or more. Three-quarters are in jobs which will last five years or more.4. The duration of employment among blacks is just as long as among whites. Even though the jobs held by blacks are worse in almost every other dimension, they are no more unstable than those held by whites. 5. Women's jobs are substantially shorter than men's, on the average. Only about a quarter of all women over the age of thirty are employed in jobs which will last over twenty years, whereas over half of men over thirty are holding these near-lifetime jobs.

Recessions appear to be times when the marginal rate of substitution between goods and workers’ time falls below the marginal product of labor. If so, the allocation of workers’ time is inefficient. I develop a model of households and production that reconciles cyclical movements in the marginal value of time and the marginal product. The model embodies the findings of research that the Frisch elasticity of labor supply is less than one. It treats unemployment in a search‐and‐matching setup. Recessions do not result in private inefficiency in the allocation of labor, but the unemployment rate may be socially inefficiently high.

An examination of data on output and labor input reveals that some U.S. industries have marginal cost well below price. The conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. This paper documents the disparity between price and marginal cost, where marginal cost is estimated from annual variations in cost. It considers a variety of explanations of the findings that are consistent with competition, but none is found to be completely plausible.

One of the important determinants of the response of saving and consumption to the real interest rate is the ela sticity of intertemporal substitution. That elasticity can be measure d by the response of the rate of change of consumption to changes in the expected real interest rate. A detailed study of data for the twe ntieth-century United States shows no strong evidence that the elasti city of intertemporal substitution is positive. Earlier findings of s ubstantially positive elasticities are reversed when appropriate esti mation methods are used.

The effects of an unexpected change in income taxes are studied in a model with full rational expectations. In the short run, aggregate supply is quite price elastic because commitments to pay predetermined wages are made 1 or more years in advance. The model also recognizes the limited response of investment to unexpected developments in the short run. The paper finds that much of the effect of unexpected tax policy operates through inflationary expectations--an economy with rational expectations is more responsive to tax changes than is one with naive expectations.