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The sources of unemployment fluctuations: an empirical application to the Italian case

  • Fabiani, Silvia
  • Locarno, Alberto
  • Oneto, Giampaolo
  • Sestito, Paolo

The paper attempts at disentangling the main sources of the rise in the Italian unemployment rate over the last four decades on the basis of a small model a la Layard-Nickell, identified and estimated using a structural VAR approach. Unemployment movements are assumed to be driven by fully permanent and long-lived but temporary shocks. The component of unemployment related to current and lagged demand shocks deriving from the sVAR estimation is found to be relevant and quite persistent, its swings accounting for approximately a 4 percentage points change in the unemployment rate. In particular, while temporary by construction, this component shows an almost continuous increase since the beginning of the 1980s. Nonetheless, the results confirm that the bulk of the rise in Italian unemployment is to be attributed to non-demand factors: temporary (namely productivity and labour supply shocks) and fully permanent (namely shocks to the wage bargaining schedule). The latter explain a gradual rise of about 2.5 percentage points between the end of the 1960s and the beginning of the 1980s; over the last 15-20 years, however, they do not seem to have further contributed to the worsening of unemployment situation. JEL Classification: C51, E24, J60

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Paper provided by European Central Bank in its series Working Paper Series with number 0029.

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Date of creation: Sep 2000
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Handle: RePEc:ecb:ecbwps:20000029
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  1. Robert J. Gordon, 1996. "The Time-Varying NAIRU and its Implications for Economic Policy," NBER Working Papers 5735, National Bureau of Economic Research, Inc.
  2. Gavosto, Andrea & Pellegrini, Guido, 1999. "Demand and supply shocks in Italy:: An application to industrial output," European Economic Review, Elsevier, vol. 43(9), pages 1679-1703, October.
  3. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, 04.
  4. Ljungqvist, Lars & Sargent, Thomas J., 1995. "The Swedish unemployment experience," European Economic Review, Elsevier, vol. 39(5), pages 1043-1070, May.
  5. Pissarides, Christopher A., 1998. "The impact of employment tax cuts on unemployment and wages; The role of unemployment benefits and tax structure," European Economic Review, Elsevier, vol. 42(1), pages 155-183, January.
  6. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
  7. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July.
  8. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  9. Douglas Staiger & James H. Stock & Mark W. Watson, 1996. "How Precise are Estimates of the Natural Rate of Unemployment?," NBER Working Papers 5477, National Bureau of Economic Research, Inc.
  10. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, March.
  11. Fabiani, Silvia & Locarno, Alberto & Oneto, Giampaolo & Sestito, Paolo, 2000. "The sources of unemployment fluctuations: an empirical application to the Italian case," Working Paper Series 0029, European Central Bank.
  12. Silvia Fabiani & Alberto Locarno & Gian Paolo Oneto & Paolo Sestito, 1997. "NAIRU: Incomes Policy and Inflation," OECD Economics Department Working Papers 187, OECD Publishing.
  13. Manning, Alan, 1993. "Wage Bargaining and the Phillips Curve: The Identification and Specification of Aggregate Wage Equations," Economic Journal, Royal Economic Society, vol. 103(416), pages 98-118, January.
  14. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  15. Ron Smith, 1999. "Unit roots and all that: the impact of time-series methods on macroeconomics," Journal of Economic Methodology, Taylor & Francis Journals, vol. 6(2), pages 239-258.
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