The Employment (and Output) of Nations: Theory and Policy Implications
I study the effects of product and labor market frictions in a dynamic general equilibrium model with a three-states representation of the labor market. Firms bargain with unions over wages and employment levels. This generates unemployment. Households take the associated unemployment risk as given in making participation and consumption-saving decisions. Unemployment harms output because it inserts a wedge between labor supply (participation) and employment. New firms make entry decisions based on expected future profitability as determined by macroeconomic conditions. The model produces dynamics consistent with the long-run trends exhibited by the US and EU15 economies over the last 40-50 years. It also features feedback mechanisms linking the two markets that amplify the adverse effects on output of labor and product market frictions. These multiplier effects have interesting policy implications.
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|Length:||33 pages JEL Classification: E1, J23|
|Date of creation:||Jun 2006|
|Date of revision:|
|Contact details of provider:|| Postal: Niels Bohrs Vej 9, 6700 Esbjerg|
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- Nickell, Stephen & Layard, Richard, 1999.
"Labor market institutions and economic performance,"
Handbook of Labor Economics,
in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084
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CEPREMAP Working Papers (Couverture Orange)
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- Paul Geroski & Paul Gregg & John van Reenen, 1995. "Market Imperfections and Employment," OECD Jobs Study Working Papers 5, OECD Publishing.
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- Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005.
"Unemployment: Macroeconomic Performance and the Labour Market,"
Oxford University Press, number 9780199279173, December.
- Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, December.
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