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Links between Labor Supply and Unemployment: Theory and Empirics

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Étienne Wasmer

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Abstract

This paper discusses the various causal relations between unemployment and participation to the labor market, notably for groups with elastic labor supply such as women. A flow model of labor market participation is used to describe how various exogenous variations jointly affect unemployment and participation. Empirical tests based on time-series of OECD countries are proposed. Notably, the model is used to determine short-run identification restrictions of a structural VAR. It concludes that, in some countries, fast rising female participation may have had a moderate short and medium run impact on unemployment rates. A variance decomposition exercise indicates that, in Continental Europe, participation is driven in the short run by unemployment shocks, while in the US, it is driven by participation shocks, interpreted as demography or immigration. Unemployment in Europe is driven in the short run by participation shocks while in the US, it is driven by unemployment shocks.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0615.

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Date of creation: 2006
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Handle: RePEc:lvl:lacicr:0615

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Related research
Keywords: Unemployment; Labor market participation; Female participation;

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Find related papers by JEL classification:
J1 - Labor and Demographic Economics - - Demographic Economics
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution

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    Other versions:
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  7. Garibaldi, Pietro & Wasmer, Etienne, 2001. "Labor Market Flows and Equilibrium Search Unemployment," IZA Discussion Papers 406, Institute for the Study of Labor (IZA). [Downloadable!]
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  11. Juhn, Chinhui & Kim, Dae Il, 1999. "The Effects of Rising Female Labor Supply on Male Wages," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 23-48, January. [Downloadable!] (restricted)
    Other versions:
  12. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January. [Downloadable!] (restricted)
    Other versions:
  13. Florence Jaumotte, 2003. "Female Labour Force Participation: Past Trends and Main Determinants in OECD Countries," OECD Economics Department Working Papers 376, OECD, Economics Department. [Downloadable!]
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  16. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
    Other versions:
  17. Cole, Harold L & Rogerson, Richard, 1999. "Can the Mortensen-Pissarides Matching Model Match the Business-Cycle Facts?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 933-59, November.
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  18. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March. [Downloadable!] (restricted)
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  20. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January. [Downloadable!] (restricted)
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    Other versions:
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