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Modelling labour market dynamics with on-the-job search

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  • den Butter, Frank A. G.
  • Gorter, Cees

Abstract

A flow model of the Dutch labour market is used to calculate the effects of policy options which aim to enhance employment, especially at the lower end of the labour market. The model distinguishes between good and bad jobs, allows for endogenous wage formation and job creation, and describes the flows between these jobs so that job-to-job mobility and the vacancy chain is made endogenous. In the matching process employed job seekers with bad jobs compete with short-term and long-term unemployed for the filling of vacancies for good jobs. In each period part of the good and bad jobs are destroyed which results in inflow into unemployment. The model explicitly describes the flow of unemployed through the various duration classes of unemployment and it allows for negative duration dependence so that the escape probability from unemployment for long-term unemployed is smaller than for short-term unemployed. The model is used to simulate the effects of external shocks, such as structural productivity shocks. An impulse response analysis using the model is also conducted considering labour market policies which aims especially to enhance employment at the lower end of the labour market. In particular, the effects are analyzed of measures subsidising the opening of bad jobs (jobs at the lower end of the labour market) and a rise in the productivity of a bad job as compared to a good job which can be achieved by changes in the tax system.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 16 (1999)
Issue (Month): 4 (December)
Pages: 545-567

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Handle: RePEc:eee:ecmode:v:16:y:1999:i:4:p:545-567

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Web page: http://www.elsevier.com/locate/inca/30411

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References

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  1. Broersma, L. & Butter, F.A.G. den, 1994. "A consistent set of time series data on labour market flows for the Netherlands," Serie Research Memoranda 0043, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  2. Berg, G.J. van den, 1987. "Nonstationarity in job search theory," Research Memorandum 242, Tilburg University, Faculty of Economics and Business Administration.
  3. Daniel S. HAMERMESH & Wolter H. J. HASSINK & Jan C. VAN OURS, 1996. "Job Turnover and Labor Turnover: A taxinomy of Employment Dynamics," Annales d'Economie et de Statistique, ENSAE, issue 41-42, pages 21-40.
  4. Gautier, P.A. & Butter, F.A.G. den, 1995. "Structural change and wage formation in an empirical flow model for the labour market," Serie Research Memoranda 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  5. Pissarides, Christopher A, 1994. "Search Unemployment with On-the-Job Search," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 457-75, July.
  6. Blanchard, Olivier Jean & Diamond, Peter A, 1994. "Ranking, Unemployment Duration, and Wages," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 417-34, July.
  7. van Ours, J., 1991. "The Efficiency of the Dutch Labour Market in Matching Unemployment and Vacancies," Open Access publications from Tilburg University urn:nbn:nl:ui:12-142205, Tilburg University.
  8. Ours, J.C. van & Gorter, C., 1994. "Matching Unemployment and Vacancies in Regional Labour Markets; an empirical analysis for the Netherlands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-142169, Tilburg University.
  9. Oliver Jean Blanchard & Peter Diamond, 1989. "The Beveridge Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 1-76.
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Cited by:
  1. den Butter, Frank A. G. & van Gameren, Edwin, 2004. "Employment policy in a dynamic labour market: simulations using a multifirm flow model," Journal of Economic Behavior & Organization, Elsevier, vol. 53(2), pages 283-301, February.

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