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Retraining the Unemployed in a Matching Model with Turbulence

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  • Felix Reichling

    (Stanford University)

Abstract

I investigate to what degree differences in retraining opportunities are responsible for the divergence of unemployment rates between the U.S. and Europe since the early 1980s. I provide some evidence for higher retraining rates in the U.S. as compared to Europe and further show that there is tremendous heterogeneity across OECD countries with respect to retraining. In my model, unemployed workers not only search for jobs but also for suitable retraining programs. I find that when it becomes more difficult to find suitable retraining programs, enrollment rates, productivity and the unemployment rate decline. Furthermore, this paper is the first attempt to investigate the role of retraining in economies that are subject to economic turbulences as described by Ljungqvist and Sargent (1998, 2004). Using a similar parametrization as Ljungqvist and Sargent (2004), I find that the generosity of unemployment benefits, the main driving force in their model, is not an important determinant of unemployment, even during tumultuous economic times, if sufficiently good retraining institutions are available. Economies with more flexible retraining institutions adjust better to economic turbulence, and as a result, feature lower unemployment rates and higher productivity and output. My results suggest that differences in retraining opportunities play an important role in explaining cross-country differences in unemployment rates.

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File URL: http://128.118.178.162/eps/mac/papers/0506/0506012.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0506012.

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Length: 41 pages
Date of creation: 17 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0506012

Note: Type of Document - pdf; pages: 41
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Web page: http://128.118.178.162

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Keywords: Retraining the Unemployed; European Unemployment; Economic Turbulence;

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Cited by:
  1. Michael Elsby & Bart Hobijn & Aysegül Sahin, 2009. "Unemployment dynamics in the OECD," Working Paper Series 2009-04, Federal Reserve Bank of San Francisco.
  2. Michael W.L. Elsby & Bart Hobijn & Aysegul Sahin, 2011. "Unemployment Dynamics in the OECD," Tinbergen Institute Discussion Papers 11-159/3, Tinbergen Institute.

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