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Unemployment Dynamics Across OECD Countries

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  • Ravi Balakrishnan
  • Claudio Michelacci

Abstract

The European Community and the US have experienced vastly different unemployment dynamics over the last two decades. This paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks. With the premise of a search theoretic framework and a structural VAR methodology, the paper robustly identifies aggregate versus reallocative shocks. With the exception of Spain where most of the dynamics seems to be driven by reallocation, it is found that most differences in unemployment dynamics arise because of differences in responses to shocks. In particular the US Labour market is quicker to adjust than the European Community. This implies that EEC economies might be dynamically 'sclerotic', even if the size of the steady state labour market flows give the impression that European Labour markets are quite active. Various identifying assumptions, additional labour supply shocks and different variables are used so that the results seem to be robust.

Suggested Citation

  • Ravi Balakrishnan & Claudio Michelacci, 1998. "Unemployment Dynamics Across OECD Countries," Working Papers wp1998_9806, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp1998_9806
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    References listed on IDEAS

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    Cited by:

    1. Fabiani, Silvia & Rodriguez-Palenzuela, Diego, 2001. "Model-based indicators of labour market rigidity," Working Paper Series 57, European Central Bank.
    2. Coppel, Jonathan & Durand, Martine & Visco, Ignazio, 2000. "The European Monetary Union, the euro, and the European policy mix," Journal of Asian Economics, Elsevier, vol. 11(1), pages 31-63.
    3. Alain Serres & Stefano Scarpetta & Christine Maisonneuve, 2001. "Falling Wage Shares in Europe and the United States: How Important is Aggregation Bias?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 28(4), pages 375-401, December.

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