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What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment

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  • Olivier Blanchard
  • Pedro Portugal

Abstract

Over the last 15 years, Portugal and the United States have had the same average unemployment rate, about 6.5%. But behind these similar rates hide two very different labor markets. Unemployment duration in Portugal is more than three times that of the United States. Symmetrically, the flow of workers into unemployment in Portugal is, in proportion to the labor force, less than a third of what it is in the United States. Relying on evidence from Portuguese and U.S. micro data sets, we show that these lower flows come in roughly equal proportions from lower job flows, and from lower worker flows relative to job flows. We then argue that these differences plausibly come from high employment protection in Portugal. We finally show how, looking across countries, higher employment protection is associated with lower flows and higher unemployment duration. In short, high employment protection makes economics more sclerotic; but because it affects unemployment duration and flows in opposite directions, it has an ambiguous effect on the unemployment rate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6636.

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Date of creation: Jul 1998
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Handle: RePEc:nbr:nberwo:6636

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  1. Giuseppe Bertola & Ricardo J. Caballero, 1993. "Cross Sectional Efficiency and Labor Hoarding in an Matching Model of Unemployment," NBER Working Papers 4472, National Bureau of Economic Research, Inc.
  2. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
  3. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  4. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  5. Lazear, Edward P, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 699-726, August.
  6. Olympia Bover & Pilar García-Perea & Pedro Portugal, 1998. "A Comparative Study of the Portuguese and Spanish Labour Markets," Banco de Espa�a Working Papers 9807, Banco de Espa�a.
  7. Saint-Paul, G., 1991. "The High Unemployment Trap," DELTA Working Papers 91-01, DELTA (Ecole normale supérieure).
  8. Oliver Jean Blanchard & Peter Diamond, 1990. "The Cyclical Behovior of the Gross Flows of U.S. Workers," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 85-156.
  9. Blanchard, Olivier & Jimeno, Juan F, 1995. "Structural Unemployment: Spain versus Portugal," American Economic Review, American Economic Association, vol. 85(2), pages 212-18, May.
  10. Cabrales, Antonio & Hopenhayn, Hugo A., 1997. "Labor-market flexibility and aggregate employment volatility," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 189-228, June.
  11. Christopher L. Foote, 1998. "Trend Employment Growth And The Bunching Of Job Creation And Destruction," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 809-834, August.
  12. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
  13. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  14. Giuseppe Bertola & Richard Rogerson, 1996. "Institutions and Labor Reallocation," NBER Working Papers 5828, National Bureau of Economic Research, Inc.
  15. Blanchard, Olivier Jean, 1997. "Labor-market flexibility and aggregate employment volatility : A comment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 229-239, June.
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