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Catastrophic job Destruction during the Portuguese Economic Crisis

Listed author(s):
  • Carneiro, Anabela
  • Portugal, Pedro
  • Varejão, José

In this article we study the resilience of the Portuguese labor market, in terms of job flows, employment and wage developments, in the context of the current recession. We single out the huge contribution of job destruction, especially due to the closing of existing firms, to the dramatic decline of total employment and increase of the unemployment rate. We also document the very large increase in the incidence of minimum wage earners and nominal wage freezes. We explore three different channels that may have amplified the employment response to the great recession: the credit channel, the wage rigidity channel, and the labor market segmentation channel. We uncover what we believe is convincing evidence that the severity of credit constraints played a significant role in the current job destruction process. Wage rigidity is seen to be associated with lower net job creation and higher failure rates of firms. Finally, labor market segmentation seems to have favored a stronger job destruction that was facilitated by an increasing number of temporary workers.

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File URL: http://www.sciencedirect.com/science/article/pii/S0164070413001638
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Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 39 (2014)
Issue (Month): PB ()
Pages: 444-457

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Handle: RePEc:eee:jmacro:v:39:y:2014:i:pb:p:444-457
DOI: 10.1016/j.jmacro.2013.09.018
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622617

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  1. Reichlin, Lucrezia, 2014. "Monetary Policy and Banks in the Euro Area: The Tale of Two Crises," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 387-400.
  2. John Addison & Mário Centeno & Pedro Portugal, 2009. "Do Reservation Wages Really Decline? Some International Evidence on the Determinants of Reservation Wages," Journal of Labor Research, Springer, vol. 30(1), pages 1-8, March.
  3. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
  4. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
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  7. Carneiro, Anabela & Portugal, Pedro & Varejão, José, 2013. "Catastrophic Job Destruction," IZA Discussion Papers 7670, Institute for the Study of Labor (IZA).
  8. Jolivet, Gregory & Postel-Vinay, Fabien & Robin, Jean-Marc, 2006. "The empirical content of the job search model: Labor mobility and wage distributions in Europe and the US," European Economic Review, Elsevier, vol. 50(4), pages 877-907, May.
  9. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
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  11. Addison, John T. & Portugal, Pedro, 2008. "How do different entitlements to unemployment benefits affect the transitions from unemployment into employment?," Economics Letters, Elsevier, vol. 101(3), pages 206-209, December.
  12. Gibson, Heather D. & Palivos, Theodore & Tavlas, George S., 2014. "The Crisis in the Euro Area: An Analytic Overview," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 233-239.
  13. Polito, Vito & Wickens, Michael, 2014. "How the Euro Crisis Evolved and how to Avoid Another: EMU, Fiscal Policy and Credit Ratings," Journal of Macroeconomics, Elsevier, vol. 39(PB), pages 364-374.
  14. Steven J. Davis & R. Jason Faberman & John Haltiwanger, 2006. "The Flow Approach to Labor Markets: New Data Sources and Micro-Macro Links," Journal of Economic Perspectives, American Economic Association, vol. 20(3), pages 3-26, Summer.
  15. Pedro Portugal & Anabela Carneiro & Paulo Guimarães, 2010. "On the cyclical sensitivity of real wages," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  16. Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 1-21, April.
  17. Ana Rute Cardoso & Pedro Portugal, 2005. "Contractual Wages and the Wage Cushion under Different Bargaining Settings," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 875-902, October.
  18. Álvaro Pina & Ildeberta Abreu, 2012. "Portugal: Rebalancing the Economy and Returning to Growth Through Job Creation and Better Capital Allocation," OECD Economics Department Working Papers 994, OECD Publishing.
  19. Anabela Carneiro & Paulo Guimarães & Pedro Portugal, 2012. "Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 133-152, April.
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