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Euro area labour markets: different reaction to shocks?

Author

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  • Roberta Serafini
  • J. Bruha
  • B. Pierluigi

Abstract

We present a new macro tool for monitoring and forecasting labour market developments across the six largest euro area countries. The model is primarly empirical but relies on theoretical underpinning in the derivation of the trends. This paper presents a new macro tool for monitoring and forecasting labour market developments across the six largest euro area countries, namely Germany, France, Italy, Spain, the Netherlands and Belgium. The model consists of a set of labour market equations (labour force, labour demand, wage curve, production function, relative prices, hours worked) which are jointly estimated, thereby providing a consistent pull of estimates for labour market quantities and prices. In particular, the model is able to distinguish between intensive (hours worked per person) and the extensive (persons employed) margins. The forecasting properties of the estimated model are satisfactory as they generally improve on rst and second order VAR models and random walk processes. The paper also shows that labour market adjustments di er substantially across euro area countries, as it emerges from the contributions of the longterm drivers and short-term shocks to key labour market developments. A small labour market model for the six largest euro area countries (Germany, France, Italy, Spain, the Netherlands, Belgium) is estimated in a state space framework. The model entails, in the long run, four driving forces: a trend labour force component, a trend labour productivity component, a long-run in ation rate and a trend hours worked component. The short run dynamics is governed by a VAR model including six shocks. The state-space framework is convenient for the decomposition of endogenous variables in trends and cycles, for shock decomposition, for incorporating external judgements, and for running conditional projections. The forecast performance of the model is rather satisfactory. The model is used to carry out a policy experiment with the objective of investigating whether euro area countries di er in the labour market adjustment to a reduction in labour costs. Results suggest that, following the 2008-2009 recession, moderate wage growth would signi cantly help delivering a more job-intense recovery. see full paper attached

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  • Roberta Serafini & J. Bruha & B. Pierluigi, 2011. "Euro area labour markets: different reaction to shocks?," EcoMod2011 2970, EcoMod.
    • Handle: RePEc:ekd:002625:2970
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    Cited by:

    1. Lafourcade, Pierre & Gerali, Andrea & Brůha, Jan & Bursian, Dirk & Buss, Ginters & Corbo, Vesna & Haavio, Markus & Håkanson, Christina & Hlédik, Tibor & Kátay, Gábor & Kulikov, Dmitry & Lozej, Matija , 2016. "Labour market modelling in the light of the financial crisis," Occasional Paper Series 175, European Central Bank.
    2. Jan Bruha & Jiri Polansky & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek & Jan Babecky & Kamil Galuscak & Lubomir Lizal & Diana Zigraiova, 2016. "Topics in Labour Markets," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 14, number rb14/1 edited by Jan Babecky, January.
    3. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek, January.

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    More about this item

    Keywords

    six largest euro area countries; Labor market issues; Macroeconometric modeling;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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