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The sources of unemployment fluctuations: an empirical application to the Italian case

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Author Info
Silvia Fabiani () (University of Cambridge, Faculty of Economics and Politics, Austin Robinson Building, Sidgwick Avenue, Cambridge CB3 9DD, United Kingdom.)
Alberto Locarno () (Bank of Italy, Via Nazionale 91, I-00184 Rome, Italy.)
Giampaolo Oneto () (Istituto Nazionale di Statistica, General, ISTAT, Via C. Balbo 16, I-00184 Rome, Italy.)
Paolo Sestito ()

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Abstract

The paper attempts at disentangling the main sources of the rise in the Italian unemployment rate over the last four decades on the basis of a small model a la Layard-Nickell, identified and estimated using a structural VAR approach. Unemployment movements are assumed to be driven by fully permanent and long-lived but temporary shocks. The component of unemployment related to current and lagged demand shocks deriving from the sVAR estimation is found to be relevant and quite persistent, its swings accounting for approximately a 4 percentage points change in the unemployment rate. In particular, while temporary by construction, this component shows an almost continuous increase since the beginning of the 1980s. Nonetheless, the results confirm that the bulk of the rise in Italian unemployment is to be attributed to non-demand factors: temporary (namely productivity and labour supply shocks) and fully permanent (namely shocks to the wage bargaining schedule). The latter explain a gradual rise of about 2.5 percentage points between the end of the 1960s and the beginning of the 1980s; over the last 15-20 years, however, they do not seem to have further contributed to the worsening of unemployment situation. JEL Classification: C51; E24; J60.

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Paper provided by European Central Bank in its series Working Paper Series with number 29.

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Length: 53 pages
Date of creation: Aug 2000
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Handle: RePEc:ecb:ecbwps:20000029

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Related research
Keywords: Unemployment; SVAR; wage and price setting; temporary and permanent shocks.;

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References listed on IDEAS
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  1. Ljungqvist, Lars & Sargent, Thomas J., 1995. "The Swedish unemployment experience," European Economic Review, Elsevier, vol. 39(5), pages 1043-1070, May. [Downloadable!] (restricted)
  2. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July. [Downloadable!] (restricted)
  3. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January. [Downloadable!] (restricted)
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  4. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Gordon, Robert J, 1996. "The Time-varying NAIRU and its Implications for Economic Policy," CEPR Discussion Papers 1492, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Smith, Ron P, 1999. "Unit Roots and All That: The Impact of Time-Series Methods on Macroeconomics," Journal of Economic Methodology, Taylor and Francis Journals, vol. 6(2), pages 239-58, July.
  7. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July. [Downloadable!] (restricted)
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  8. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  9. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Layard, R. & Nickell, S., . "Layard-Nickell," Instructional Stata datasets for econometrics layardnickell, Boston College Department of Economics. [Downloadable!]
  11. Gavosto, Andrea & Pellegrini, Guido, 1999. "Demand and supply shocks in Italy:: An application to industrial output," European Economic Review, Elsevier, vol. 43(9), pages 1679-1703, October. [Downloadable!] (restricted)
  12. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
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Cited by:
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  1. Luis Eduardo Arango & Ana María Iregui & Luis Fernando Melo, 2003. "Recent Behavior of Outpout , Unemployment, Wages and Prices in Colombia: What went wrong?," BORRADORES DE ECONOMIA 003417, BANCO DE LA REPÚBLICA. [Downloadable!]
    Other versions:
  2. Annika Alexius & Bertil Holmlund, 2007. "Monetary Policy and Swedish Unemployment Fluctuations," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. ARANGO, Luis Eduardo & IREGUI, Ana María & MELO, Luis F., 2006. "Recent macroeconomic performance in colombia: what went wrong?," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  4. Ralf Brüggemann, 2006. "Sources of German unemployment: a structural vector error correction analysis," Empirical Economics, Springer, vol. 31(2), pages 409-431, June. [Downloadable!] (restricted)
    Other versions:
  5. Bergvall, Anders & Forsfält, Tomas & Hjelm, Göran & Nilsson, Jonny & Vartiainen, Juhana, 2007. "KIMOD 1.0 Documentation of NIER´s Dynamic Macroeconomic General Equilibrium Model of the Swedish Economy," Working Paper 100, National Institute of Economic Research. [Downloadable!]
  6. Maida Agata & Devicienti Francesco & Sestito Paolo, 2005. "Downward wage rigidity in Italy: micro-based measures and implications," Department of Economics Working Papers 200503, University of Turin. [Downloadable!]
    Other versions:
  7. Silvia Fabiani & Diego Rodriguez-Palenzuela, 2001. "Model-based indicators of labour market rigidity," Working Paper Series 057, European Central Bank. [Downloadable!]
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