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Why Is French Equilibrium Unemployment So High?

Unemployment in France rose steadily from the early-seventies to the mid-eighties. Since the mid-eighties it has continued to experience fluctuations around a very high average level. Equilibrium unemployment theories are a useful framework within which to account for these developments. A multivariate estimation of the WS-PS model on macroeconomic quarterly data, which includes a larger number of potential unemployment determinants than earlier work, allows an enriched reading of the rise in French unemployment and of its persistence at a high level. We estimated it using a conditional VAR-ECM model, which is based upon the weak exogeneity properties of variables over the 1970-1/1996-4 period. The rise in equilibrium unemployment by 10 points in 25 years can essentially be explained by the rise in tax and social wedge, the slowdown in labour productivity and the deterioration of job security. Terms of exchange and skill mismatch account for only a slim part of the rise in equilibrium unemployment.

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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VI (2003)
Issue (Month): (May)
Pages: 127-156

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Handle: RePEc:cem:jaecon:v:6:y:2003:n:1:p:127-156
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  1. Boswijk, Peter & Franses, Philip Hans, 1992. "Dynamic Specification and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 369-81, August.
  2. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  3. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, March.
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