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The Unemployment Volatility Puzzle: The Role Of The Underground Economy

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  • Lisi GAETANO

Abstract

Relying on the non-negligible role played by the underground economy in the labour market fluctuations, this paper extends the standard matching model à la Mortensen-Pissarides by introducing an underground sector along with an endogenous sector choice for both entrepreneurs and workers. These modifications improve the quantitative properties of the standard matching model, thus providing a possible explanation for the unemployment volatility puzzle.

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Bibliographic Info

Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 5 (2010)
Issue (Month): 2(12)/Summer2010 ()
Pages: 59-69

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Handle: RePEc:ush:jaessh:v:5:y:2010:i:2(12)_spring2010:p:101

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Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14
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Related research

Keywords: unemployment and vacancies volatility; productivity and job destruction shocks; underground economy; shadow economy; hidden economy; matching models;

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References

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  1. Paul Frijters & Uwe Dulleck & Rudolf Winter-Ebmer, 2006. "Reducing Start-up costs for New Firms: The Double Dividend on the Labor Market," School of Economics and Finance Discussion Papers and Working Papers Series 208a, School of Economics and Finance, Queensland University of Technology.
  2. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
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  4. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  5. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
  6. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  7. repec:ebl:ecbull:v:10:y:2007:i:13:p:1-11 is not listed on IDEAS
  8. Dale T. Mortensen & Eva Nagypal, 2005. "More on Unemployment and Vacancy Fluctuations," NBER Working Papers 11692, National Bureau of Economic Research, Inc.
  9. Tito Boeri & Pietro Garibaldi, . "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Barbara Petrongolo & Christopher Pissarides, 2000. "Looking into the black box: a survey of the matching function," LSE Research Online Documents on Economics 2122, London School of Economics and Political Science, LSE Library.
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  15. Tito Boeri & Pietro Garibaldi, 2006. "Shadow Sorting," Carlo Alberto Notebooks 10, Collegio Carlo Alberto.
    • Tito Boeri & Pietro Garibaldi, 2005. "Shadow Sorting," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 125-163 National Bureau of Economic Research, Inc.
  16. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
  17. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan.
  18. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  19. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  20. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 115-29, January.
  21. Lawrence Uren, 2007. "Entrepreneurship and labour market fluctuations," Economics Bulletin, AccessEcon, vol. 10(13), pages 1-11.
  22. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series 524, William Davidson Institute at the University of Michigan.
  23. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The unemployment volatility puzzle: the role of the underground economy
    by Christian Zimmermann in NEP-DGE blog on 2010-05-26 17:46:21
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Cited by:
  1. Giuseppe Ciccarone & Francesco Giuli & Enrico Marchetti, 2012. "Underground labor, search frictions and macroeconomic fluctuations," Departmental Working Papers of Economics - University 'Roma Tre' 0159, Department of Economics - University Roma Tre.
  2. Oleg KITOV & Ivan KITOV, 2012. "Inflation And Unemployment In Switzerland: From 1970 To 2050," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(2(20)/ Su), pages 141-156.

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