Labor supply shocks and unemployment persistence

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Labor supply shocks and unemployment persistence

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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

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Frank A.G. Den Butter

Abstract

Our small empirical stock-flow model for the Dutch economy, which endogenizes the adjustment dynamics to (un)employment search equilibria, identifies two mechanisms that caused persistente in labor market adjustments: (i) job competition from non-participants, and (ii) asymmetrie adjustments to cyclical shocks. At the core of the model is an estimated matching function. Using Dutch flow data for the period 1970-1997 we tnd that the search effectiveness of individuals on welfare benefits and non-participation is 0.33 respectively 0.05 of the search effectiveness of individuals receiving unemployment insurance. In accordance with actual developments in the reference period, our model simulations show that, when the flow from non-participants into the labor market rises permanently, the unemployment rate rises quickly and stabilizes at a higher leve1 whereas employment continues to rise. Yet, a sensitivity analysis with altemative assumptions on the type of supply shocks and the reaction of labor demand to these shocks indicates that the adjustment dynamics, and hence the degree of persistente, depend much on the search behavior of non-participants.

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Paper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0017.

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Date of creation: 2001
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Handle: RePEc:dgr:vuarem:2001-17

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-03-14 (All new papers)
NEP-LAB-2002-03-14 (Labour Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June. [Downloadable!] (restricted)
Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March. [Downloadable!] (restricted)
Broersma, Lourens & den Butter, Frank A. G. & Kock, Udo, 2000. "A national accounting system for worker flows," Economics Letters, Elsevier, vol. 67(3), pages 331-336, June. [Downloadable!] (restricted)

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