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Unemployment Dynamics Across OECD Countries

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  • Balakrishnan, R.
  • Michelacci, C.

Abstract

The European Community and the US have experienced vastly different unemployment dynamics over the last two decades. This paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks. With the premise of a search theoretic framework and a structural VAR methodology, the paper robustly identifies aggregate versus reallocative shocks. With the exception of Spain where most of the dynamics seems to be driven by reallocation, it is found that most differences in unemployment dynamics arise because of differences in responses to shocks. In particular the US Labour market is quicker to adjust than the European Community. This implies that EEC economies might be dynamically 'sclerotic', even if the size of the steady state labour market flows give the impression that European Labour markets are quite active. Various identifying assumptions, additional labour supply shocks and different variables are used so that the results seem to be robust.

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Bibliographic Info

Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 9806.

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Length: 50 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:cemfdt:9806

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Keywords: UNEMPLOYMENT ; LABOUR MARKET ; ECONOMETRIC MODELS;

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References

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  1. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  2. Caballero, R.J. & Hammour, M.L., 1991. "The Cleansing Effect of Recessions," Discussion Papers 1991_59, Columbia University, Department of Economics.
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  4. 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.
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  7. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
  8. Christopher A. Pissarides, 1992. "Search Unemployment with on-the-job Search," CEP Discussion Papers dp0074, Centre for Economic Performance, LSE.
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  14. Jovanovic, Boyan, 1984. "Matching, Turnover, and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 108-22, February.
  15. Marimon, Ramon & Zilibotti, Fabrizio, 1996. "'Actual' versus 'Virtual' Employment in Europe: Is Spain Different?," CEPR Discussion Papers 1427, C.E.P.R. Discussion Papers.
  16. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
  17. bertola, G. & Rogerson, R., 1996. "Institutions and Labor Reallocation," Papers 272, Banca Italia - Servizio di Studi.
  18. Pissarides, Christopher A, 1992. "Loss of Skill during Unemployment and the Persistence of Employment Shocks," The Quarterly Journal of Economics, MIT Press, vol. 107(4), pages 1371-91, November.
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  20. Acemoglu, Daron, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 779-804, August.
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