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Unemployment dynamics across OECD countries

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  • Balakrishnan, Ravi
  • Michelacci, Claudio

Abstract

The European Community and the US have experienced vastly different unemployment dynamics over the last two decades. This paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks. With the premise of a search theoretic framework and a structural VAR methodology, the paper robustly identifies aggregate versus reallocative shocks. With the exception of Spain where most of the dynamics seems to be driven by reallocation, it is found that most differences in unemployment dynamics arise because of differences in responses to shocks. In particular the US Labour market is quicker to adjust than the European Community. This implies that EEC economies might be dynamically 'sclerotic', even if the size of the steady state labour market flows give the impression that European Labour markets are quite active. Various identifying assumptions, additional labour supply shocks and different variables are used so that the results seem to be robust.
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Suggested Citation

  • Balakrishnan, Ravi & Michelacci, Claudio, 2001. "Unemployment dynamics across OECD countries," European Economic Review, Elsevier, vol. 45(1), pages 135-165, January.
  • Handle: RePEc:eee:eecrev:v:45:y:2001:i:1:p:135-165
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    More about this item

    JEL classification:

    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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