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Competition between unemployed and non-participants, and unemployment hysteresis

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  • Butter, Frank A.G. den

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Jongen, Egbert L.W.
  • Kock, Udo

Abstract

This paper considers labour supply and demand shocks in a simple flow model of the labour market. We explicitly model the propagation of shocks and the adjustment mechanisms. By way of simulations we explore the extent of labour market hysteresis arising from negative duration dependence and the so-called entitlement effect that arises when social security provisions become more generous. The main findings of our modelling exercise are: (i) the extent of hysteresis depends very much on the way labour demand reacts to labour supply, (ii) negative duration dependence adds to unemployment hysteresis, and, (iii) the degree of hysteresis depends on the type of the shock.

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File URL: ftp://zappa.ubvu.vu.nl/19990013.pdf
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Bibliographic Info

Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0013.

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Date of creation: 1999
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Handle: RePEc:dgr:vuarem:1999-13

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Web page: http://www.feweb.vu.nl

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Keywords: unemployment persistence; labour market flows;

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  1. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
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