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The ins and outs of European unemployment

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  • Barbara Petrongolo
  • Christopher Pissarides

Abstract

In this paper we study the contribution of inflows and outflows to the dynamics of unemployment in three European countries, the United Kingdom, France and Spain. All countries are interesting in their own right and in the comparison with each other. Britain’s labour markets were strictly regulated up to the mid 1980s but they have been liberalized since then. France is still a regulated economy compared with Britain, with unemployment averaging about 8%. Spain has had the biggest rise in unemployment in Europe, reaching 24% in the mid 1990s, but policy reforms and fast growth since then brought it down to a level below France’s. We compare performance in these three countries making use of both administrative and labor force survey data. We find that the impact of the 1980s reforms in Britain is evident in the contributions of the inflow and outflow rates. The inflow rate became a bigger contributor after the mid 1980s, although its significance subsided again in the late 1990s and 2000s. In France the dynamics of unemployment are driven by the outflow rate virtually entirely, which is consistent with a regime with strict employment protection legislation. In Spain, however, both rates contribute significantly to the dynamics, perhaps as a consequence of the prominence of fixed-term contracts since the late 1980s.

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File URL: http://eprints.lse.ac.uk/3607/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 3607.

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Date of creation: May 2008
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Publication status: Published in American Economic Review, May, 2008, 98(2), pp. 256-262. ISSN: 0002-8282
Handle: RePEc:ehl:lserod:3607

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  1. Shigeru Fujita & Garey Ramey, 2007. "The cyclicality of separation and job finding rates," Working Papers 07-19, Federal Reserve Bank of Philadelphia.
  2. Yashiv, Eran, 2006. "U.S. Labor Market Dynamics Revisited," IZA Discussion Papers 2455, Institute for the Study of Labor (IZA).
  3. Michael W. Elsby & Ryan Michaels & Gary Solon, 2007. "The Ins and Outs of Cyclical Unemployment," NBER Working Papers 12853, National Bureau of Economic Research, Inc.
  4. Shigeru Fujita & Garey Ramey, 2007. "Reassessing the Shimer facts," Working Papers 07-2, Federal Reserve Bank of Philadelphia.
  5. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
  6. Gomes, Pedro, 2012. "Labour market flows: Facts from the United Kingdom," Labour Economics, Elsevier, vol. 19(2), pages 165-175.
  7. Shigeru Fujita & Garey Ramey, 2006. "The cyclicality of job loss and hiring," Working Papers 06-17, Federal Reserve Bank of Philadelphia.
  8. Gayle Allard, 2005. "Measuring job security over time: in search of a historical indicator for EPL," Working Papers Economia wp05-17, Instituto de Empresa, Area of Economic Environment.
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