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Unemployment in the European Union : a dynamic reappraisal

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  • Karanassou, Marika
  • Sala, Héctor
  • Snower, Dennis J.

Abstract

This paper examines the movements in EU unemployment from two perspectives: (a) the NRU/NAIRU perspective, in which unemployment movements are attributed largely to changes in the long-run equilibrium unemployment rate and (b) the chain-reaction perspective, in which unemployment movements are viewed as the outcome of the interplay between labor market shocks and prolonged lagged adjustment processes. We present an empirical analysis that distinguishes between unemployment movements arising from long-run equilibrium changes and those arising from lagged intertemporal adjustments. This analysis has far-reaching policy implications. Our analysis shows that the rise in EU unemployment over the 1970s and first part of the 1980s was due largely to permanent shocks (especially the rise in working-age population and the decline in capital formation), whereas the unemployment increase in the first part of the 1990s was due largely to temporary shocks (especially the fall in competitiveness and the rise in real interest rates).

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Open Access publications from Kiel Institute for the World Economy with number info:hdl:10419/2933.

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Date of creation: 2003
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Publication status: Published in Economic modelling (2003) v.20, p.237-273
Handle: RePEc:ner:ifwkie:info:hdl:10419/2933

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Web page: http://www.ifw-kiel.de

Related research

Keywords: Arbeitslosigkeit; Natürliche Arbeitslosigkeit; Schock; Erwerbspersonenpotenzial; EU-Staaten;

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References

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  1. Olivier J. Blanchard & Lawrence H. Summers, 1987. "Hysteresis and the European Unemployment Problem," NBER Working Papers 1950, National Bureau of Economic Research, Inc.
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  21. Wolfgang HÄRDLE & J. MARRON & L. YANG, 1996. "Discussion," SFB 373 Discussion Papers 1996,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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