In this paper we study the effects of shocks (a slowdown in TFP growth and an increase in the real interest rate) in a model with endogenous job destruction and job creation. We show that both increase the job destruction margin and the job rejection margin and, thus, the unemployment rate. Moreover, the effects are bigger for those countries with generous unemployment benefits. This framework, thus, provides an explanation for the observation that European unemployment rates increased during the last 2/3 decades and the US unemployment rate did not. We also analyze the role of turbulence.
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Find related papers by JEL classification: E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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