We study the Danish unemployment experience 1905-92 using a multivariate common trends model with cointegration constraints. To interpret the empirical results we analyse a simple macroeconomic model of the labor market. The empirical results indicate that there are three cointegration relations and two common trends among the five variables we examine, and the economic model suggests that the trends are due to technology and labor supply. Moreover, Danish unemployment appears to be nonstationary. Based on the identifying assumption of constant returns to scale in production, from the empirical common trends analysis we find that shocks to labor supply is the source behind hysteresis in unemployment.
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number
95-03.
Length: 33 pages Date of creation: Apr 1995 Date of revision: Handle: RePEc:kud:kuiedp:9503
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution