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The unemployment volatility puzzle: the role of the underground economy

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  • Lisi, Gaetano

Abstract

Relying on the non-negligible role played by the underground economy in the labour market fluctuations, this paper extends the standard matching model à la Mortensen-Pissarides by introducing an underground sector along with an endogenous sector choice for both entrepreneurs and workers. These modifications improve the quantitative properties of the standard matching model, thus providing a possible explanation for the unemployment volatility puzzle.

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File URL: http://mpra.ub.uni-muenchen.de/22689/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 22689.

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Date of creation: 13 May 2010
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Handle: RePEc:pra:mprapa:22689

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Keywords: unemployment and vacancies volatility; productivity and job destruction shocks; underground economy; shadow economy; hidden economy; matching models.;

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References

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  1. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
  2. Tito Boeri & Pietro Garibaldi, . "Shadow Activity and Unemployment in a Depressed Labor Market," Working Papers 177, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Maxim Bouev, 2005. "State Regulations, Job Search and Wage Bargaining: A Study in the Economics of the Informal Sector," William Davidson Institute Working Papers Series wp764, William Davidson Institute at the University of Michigan.
  4. Dale T. Mortensen & Christopher A. Pissarides, 1993. "Job Creation and Job Destruction in the Theory of Unemployment," CEP Discussion Papers dp0110, Centre for Economic Performance, LSE.
  5. Lawrence Uren, 2007. "Entrepreneurship and labour market fluctuations," Economics Bulletin, AccessEcon, vol. 10(13), pages 1-11.
  6. Andreas Hornstein & Per Krusell & Giovanni L. Violante, 2005. "Unemployment and vacancy fluctuations in the matching model: inspecting the mechanism," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-50.
  7. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
  8. Boeri, Tito & Garibaldi, Pietro, 2006. "Shadow Sorting," CEPR Discussion Papers 5487, C.E.P.R. Discussion Papers.
    • Tito Boeri & Pietro Garibaldi, 2005. "Shadow Sorting," NBER Chapters, in: NBER International Seminar on Macroeconomics 2005, pages 125-163 National Bureau of Economic Research, Inc.
  9. repec:ebl:ecbull:v:10:y:2007:i:13:p:1-11 is not listed on IDEAS
  10. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  11. James Albrecht & Lucas Navarro & Susan Vroman, 2009. "The Effects of Labour Market Policies in an Economy with an Informal Sector," Economic Journal, Royal Economic Society, vol. 119(539), pages 1105-1129, 07.
  12. Marcus Hagedorn & Iourii Manovskii, 2007. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies Revisited," IEW - Working Papers 351, Institute for Empirical Research in Economics - University of Zurich.
  13. Dulleck, Uwe & Frijters, Paul & Winter-Ebmer, Rudolf, 2003. "Reducing Start-up Costs for New Firms: The Double Dividend on the Labor Market," Economics Series 146, Institute for Advanced Studies.
  14. Pietro Garibaldi, 2006. "Hiring Freeze and Bankruptcy in Unemployment Dynamics," 2006 Meeting Papers 227, Society for Economic Dynamics.
  15. Christopher Pissarides, 2002. "Company start-up costs and employment," LSE Research Online Documents on Economics 2200, London School of Economics and Political Science, LSE Library.
  16. Robert E. Hall & Paul R. Milgrom, 2007. "The Limited Influence of Unemployment on the Wage Bargain," Levine's Bibliography 321307000000000135, UCLA Department of Economics.
  17. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  18. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
  19. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
  20. Maxim Bouev, 2002. "Official Regulations and the Shadow Economy: A Labour Market Approach," William Davidson Institute Working Papers Series 524, William Davidson Institute at the University of Michigan.
  21. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
  22. Laing, Derek & Palivos, Theodore & Wang, Ping, 1995. "Learning, Matching and Growth," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 115-29, January.
  23. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The unemployment volatility puzzle: the role of the underground economy
    by Christian Zimmermann in NEP-DGE blog on 2010-05-26 17:46:21
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Cited by:
  1. Giuseppe Ciccarone & Francesco Giuli & Enrico Marchetti, 2012. "Underground labor, search frictions and macroeconomic fluctuations," Departmental Working Papers of Economics - University 'Roma Tre' 0159, Department of Economics - University Roma Tre.
  2. Oleg Kitov & Ivan Kitov, 2011. "Inflation and unemployment in Switzerland: from 1970 to 2050," Papers 1102.5405, arXiv.org.

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