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The Pace of Structural Change, Cyclical Shocks and Unemployment Dynamics

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  • F.A.G. den Butter

    ()
    (Vrije Universiteit Amsterdam)

  • M. van Dijk

    (Vrije Universiteit Amsterdam)

Abstract

During the last decade The Netherlands witnessed an increase in the pace of job creation and job destruction. A sensitivity analysis using an empirical model of labour market flows shows thatthe congestion in the matching process due to the increase in the pace of job creation and destruction may have substantial effects on employment and unemployment;the effects depend very much on the initial pace of labour market dynamics and they are larger when the initial pace is low;the economy may be out of its unemployment equilibrium for quite a long time after a shock occurs.The novelty of the model is that it takes explicitly account of the propagationof shocks through the various duration classes of unemployment andallows for negative duration dependence. In the case of negativeduration dependence caused by depreciation of human capital long-termunemployed become, to a certain extent, 'outsiders'. However, in themodel simulations no much unemployment persistence is found as aconsequence of cyclical fluctuations in the pace of job creation anddestruction. The 'thin' market argument, i.e. the endogenous decreasein job creation in response to the depreci-ation of human capitalfollowing an adverse cyclical shock, does not lead to much persistenceeither according to our model, which assumes homogeneous (and equallyproductive) jobs and long run equlibrium unemployment.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 97-053/3.

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Date of creation: 30 May 1997
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Handle: RePEc:dgr:uvatin:19970053

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  1. Layard, Richard & Bean, Charles, 1989. " Why Does Unemployment Persist?," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 91(2), pages 371-96.
  2. Gautier, P. & Broersma, L., 1994. "The timing of labor reallocation and the business cycle," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0029, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(4), pages 1371-91, November.
  4. Broersma, Lourens & den Butter, Frank A. G. & Kock, Udo, 2000. "A national accounting system for worker flows," Economics Letters, Elsevier, Elsevier, vol. 67(3), pages 331-336, June.
  5. Blanchard, Olivier Jean & Diamond, Peter, 1992. "The Flow Approach to Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 82(2), pages 354-59, May.
  6. Burdett, Kenneth & Coles, Melvyn G & van Ours, Jan C, 1994. "Temporal Aggregation Bias in Stock-Flow Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 967, C.E.P.R. Discussion Papers.
  7. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues, Federal Reserve Bank of Chicago 91-5, Federal Reserve Bank of Chicago.
  8. Caballero, R.J. & Hammour, M.L., 1991. "The Cleansing Effect of Recessions," Discussion Papers, Columbia University, Department of Economics 1991_59, Columbia University, Department of Economics.
  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.
  10. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262540932, December.
  11. 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, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  12. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers, Centre for Economic Performance, LSE dp0110, Centre for Economic Performance, LSE.
  13. Burda, Michael C, 1992. "Unemployment, Labour Market Institutions and Structural Change in Eastern Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 746, C.E.P.R. Discussion Papers.
  14. Ricardo J. Caballero & Mohamad L. Hammour, 1994. "On the Timing and Efficiency of Creative Destruction," NBER Working Papers 4768, National Bureau of Economic Research, Inc.
  15. Graafland, J J, 1991. "On the Causes of Hysteresis in Long-Term Unemployment in the Netherlands," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 53(2), pages 155-70, May.
  16. 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.
  17. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
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Cited by:
  1. Gorter, Cees & Larquier, Guillemette de, 1999. "Labour market dynamics in a heterogeneous market," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0048, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  2. Kock, Udo, 1998. "Constructing labour market flows for the Netherlands using macro data from social security provisions : 1970-1995," Serie Research Memoranda, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics 0040, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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