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Turbulence And Unemployment In A Job Matching Model

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  • Wouter J. den Haan

    (London Business School,)

  • Christian Haefke

    (Universitat Pompeu Fabra,)

  • Garey Ramey

    (University of California, San Diego,)

Abstract

According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse newjobs due to high unemployment benefits. In this paper we reassess the turbulence-unemployment relationship using a matching model with endogenous job destruction. In our model, higher turbulence reduces the incentives of employed workers to leave their jobs. If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment. Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers. (JEL: E24, J64) Copyright (c) 2005 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 3 (2005)
Issue (Month): 6 (December)
Pages: 1360-1385

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Handle: RePEc:tpr:jeurec:v:3:y:2005:i:6:p:1360-1385

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  1. Luca Nunziata, 2002. "Unemployment, Labour Market Institutions and Shocks," Economics Papers 2002-W16, Economics Group, Nuffield College, University of Oxford.
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  7. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  8. Wouter Den Haan & Christian Haefke & Garey Ramey, 2001. "Shocks and Institutions in a Job Matching Model," NBER Working Papers 8463, National Bureau of Economic Research, Inc.
  9. Lawrence Kahn, 2003. "Labour Market Institutions and Unemployment in OECD Countries," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(4), pages 25-32, October.
  10. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
  11. Franz, Wolfgang, 1999. "Real and monetary challenges to wage policy in Germany at the turn of the millennium: technical progress, globalization and European Monetary Union," ZEW Discussion Papers 99-48, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  13. Becker, Gary S & Landes, Elisabeth M & Michael, Robert T, 1977. "An Economic Analysis of Marital Instability," Journal of Political Economy, University of Chicago Press, vol. 85(6), pages 1141-87, December.
  14. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Job destruction and the experiences of displaced workers," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 52(1), pages 87-128, June.
  15. McLaughlin, Kenneth J, 1991. "A Theory of Quits and Layoffs with Efficient Turnover," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 1-29, February.
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Cited by:
  1. Felix Reichling, 2005. "Retraining the Unemployed in a Matching Model with Turbulence," Macroeconomics 0506012, EconWPA.
  2. Georg Duernecker, 2008. "Technology Adoption, Turbulence and the Dynamics of Unemployment," Economics Working Papers ECO2008/10, European University Institute.
  3. Shigeru Fujita, 2012. "Labor market anxiety and the downward trend in the job separation rate," Business Review, Federal Reserve Bank of Philadelphia, issue Q4, pages 1-7.
  4. Burgess, Simon & Turon, Hélène, 2010. "Worker flows, job flows and unemployment in a matching model," European Economic Review, Elsevier, vol. 54(3), pages 393-408, April.
  5. Satchi, Mathan & Temple, Jonathan, 2006. "Growth and Labour Markets in Developing Countries," CEPR Discussion Papers 5515, C.E.P.R. Discussion Papers.
  6. Philip Schuster, 2010. "Labor Market Policy Instruments and the Role of Economic Turbulence," University of St. Gallen Department of Economics working paper series 2010 2010-29, Department of Economics, University of St. Gallen.
  7. Shigeru Fujita, 2011. "Declining labor turnover and turbulence," Working Papers 11-44, Federal Reserve Bank of Philadelphia.
  8. Martin Gervais & Igor Livshits & Césaire Meh, 2007. "Uncertainty and the Specificity of Human Capital," Working Papers 07-57, Bank of Canada.
  9. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2007. "Technology—Policy Interaction in Frictional Labour-Markets," Review of Economic Studies, Oxford University Press, vol. 74(4), pages 1089-1124.
  10. Hahn, Volker, 2009. "Search, unemployment, and age," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1361-1378, June.

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