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The Era of the U.S.-Europe Labor Market Divide: What can we learn?

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  • Philip, Jung
  • Moritz, Kuhn

Abstract

Comparing labor markets in the United States and Germany as Europe’s largest economy over the period from 1980−2004 uncovers three stylized differences: (1) Germany’s mean transition rates from unemployment to employment (UE) were lower by a factor of 5 and transition rates from employment to unemployment (EU) were lower by a factor of 4. (2) The volatility of the UE rate was equal in both countries, but the EU rate was 2.3 times more volatile in Germany. (3) In Germany EU flows contributed 60−70% to unemployment volatility, whereas in the U.S. they contributed only 30−40%. Using a search and matching model we show theoretically that the joint analysis of first and second moments offers general identification restrictions on the underlying causes for these differences. We find that a lower efficiency in the matching process can consistently explain the facts while alternative explanations such as employment protection, the benefit system, union power, or rigid earnings can not. We document that a lower matching efficiency due to lower occupational and regional mobility in Germany finds strong support in the data. Finally, we show that the highlighted matching friction leads in the model calibrated to the German economy to a substantial amplification and propagation of shocks.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32322.

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Date of creation: 19 Jul 2011
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Handle: RePEc:pra:mprapa:32322

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Keywords: Business Cycle Fluctuations; Labor Market Institutions; Unemployment; Endogenous Firing;

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Citations

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Cited by:
  1. Tom Krebs & Martin Scheffel, 2013. "Macroeconomic Evaluation of Labor Market Reform in Germany," IMF Working Papers 13/42, International Monetary Fund.
  2. Tommaso Ciarli & Andre' Lorentz & Maria Savona & Marco Valente, 2012. "The role of technology, organisation, and demand in growth and income distribution," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2012/06, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  3. Bachmann, Rüdiger & Bayer, Christian & Seth, Stefan & Wellschmied, Felix, 2013. "Cyclicality of Job and Worker Flows: New Data and a New Set of Stylized Facts," IZA Discussion Papers 7192, Institute for the Study of Labor (IZA).
  4. Hertweck, Matthias Sebastian & Sigrist, Oliver, 2013. "The Aggregate Effects of the Hartz Reforms in Germany," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79942, Verein für Socialpolitik / German Economic Association.
  5. Tommaso Ciarli, 2012. "Structural Interactions and Long Run Growth. An Application of Experimental Design to Agent Based Models," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 295-345.
  6. Nordmeier, Daniela, 2012. "Worker flows in Germany: Inspecting the time aggregation bias," IAB Discussion Paper 201212, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

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