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Labour market dynamics in a heterogeneous market

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Author Info

  • Gorter, Cees

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

  • Larquier, Guillemette de

Abstract

This paper develops a flow model in a dual labour market with heterogeneous workers and heterogeneous jobs that allows for upward mobility or promotion flows via the internal market and demotion or deskilling flows through the state of unemployment. Dynamic impulse-responses analyses are used to examine the effects of labour market policies that aim to generate institutional changes in the wage bargaining process, make job creation less costly or job matching more efficiently to reduce unemployment, and increase competitiveness through a rise in labour productivity. We find that the usual trade-off between wages and employment shows up clearly as a result of changes in bargaining power. Moreover, the short-run and long-run effects on unemployment of active labour market policy instruments differ considerably dependent on which segment of the labour market is influenced initially. Finally, unemployment among workers without experience (skills) goes down most strongly when productivity gains are not directed to them directly, but - instead - realized for workers in the primary segment of the labour market.

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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 0048.

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Date of creation: 1999
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Handle: RePEc:dgr:vuarem:1999-48

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

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  1. 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.
  2. Blanchard, J.O., 1989. "The Aggregate Matching Function," Working papers 538, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. F.A.G. den Butter & M. van Dijk, 1997. "The Pace of Structural Change, Cyclical Shocks and Unemployment Dynamics," Tinbergen Institute Discussion Papers 97-053/3, Tinbergen Institute.
  4. 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 0039, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
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