Shocks and Institutions in a Job Matching Model
AbstractThis paper explains the divergent behavior of European and US unemployment rates using a job market model of the labor market with an interaction between shocks and institutions. It shows that a reduction in TFP growth rates, an increase in real interest rates, and an increase in tax rates leads to a permanent increase in unemployment rates when the replacement rates or initial tax rates are high, while no increase in unemployment occurs when institutions are "employment friendly." The paper also shows that an increase in turbulence, modelled as an increased probability of skill loss, is not a robust explanation for the European unemployment puzzle in the context of a matching model with both endogenous job creation and job destruction.
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Bibliographic InfoPaper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number qt7x3544bn.
Date of creation: 01 Aug 2001
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job matching model; unemployment; unemployment benefits; turbulence; TFP slowdown;
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