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Why is French Equilibrium Unemployment so High : an Estimation of the WS-PS Model

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  • Yannick L’Horty

    () (EPEE, University of Evry Val d’Essonne)

  • Christophe Rault

    (EUREQua, University of Paris I Panthéon-Sorbonne)

Abstract

Since the early-seventies to the mid-eighties, the rise of unemployment has been very regular in France. On the contrary, since the mid-eighties French unemployment has experienced fluctuations, sometimes important, but always around an average level that has remained very high. To give account of this evolution, equilibrium unemployment theories are a useful framework. In relation to the existing works, we provide here a multivariate estimation of the WS-PS model on macroeconomic quarterly data, which takes a large number of potential unemployment determinants into account. This permits us to give an enriched reading of French unemployment rise and of its persistence to a high level. Our estimation is made possible thanks to the use of a different methodology which rests upon the weak exogeneity properties of the variables. More precisely, we have estimated using a conditional VAR-ECM model, the relationships between unemployment rate, real labour cost and its determinants over the 1970-1/1996-4 period. The estimation leads to a rate of equilibrium unemployment nearing its effective level at the end of the period. The rise in equilibrium unemployment, by 10 points in 25 years, would be accounted for essentially by the rise of tax and social wedge, the slow down of labour productivity and by deterioration of job security. The terms of exchange which have essentially varied under the impact of oil crises and distortion between proposed and required qualifications on labour market, would only account for a slight part of the rise of equilibrium unemployment.

Suggested Citation

  • Yannick L’Horty & Christophe Rault, 2001. "Why is French Equilibrium Unemployment so High : an Estimation of the WS-PS Model," Documents de recherche 01-18, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  • Handle: RePEc:eve:wpaper:01-18
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    References listed on IDEAS

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    Cited by:

    1. Nidhaleddine Ben Cheikh & Christophe Rault, 2016. "Recent estimates of exchange rate pass-through to import prices in the euro area," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 69-105, February.
    2. Ekrame Boubtane & Dramane Coulibaly & Christophe Rault, 2013. "Immigration, Growth, and Unemployment: Panel VAR Evidence from OECD Countries," LABOUR, CEIS, vol. 27(4), pages 399-420, December.
    3. Odile Chagny & Frédéric Reynès & Henri Sterdyniak, 2002. "Le taux de chômage d'équilibre. Discussion théorique et évaluation empirique," Revue de l'OFCE, Presses de Sciences-Po, vol. 81(2), pages 205-244.
    4. Farhani, Sahbi & Mrizak, Sana & Chaibi, Anissa & Rault, Christophe, 2014. "The environmental Kuznets curve and sustainability: A panel data analysis," Energy Policy, Elsevier, vol. 71(C), pages 189-198.
    5. Frédéric Reynès, 2010. "The Phillips curve as a more general model than the Wage Setting curve," Documents de Travail de l'OFCE 2010-28, Observatoire Francais des Conjonctures Economiques (OFCE).
    6. Holmlund, Bertil & Alexius, Annika, 2008. "Monetary Policy and Swedish Unemployment Fluctuations," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-25.
    7. Mohamed El Hedi Arouri & Adel Ben Youssef & Hatem M'Henni & Christophe Rault, 2014. "Energy use and economic growth in Africa: a panel Granger-causality investigation," Economics Bulletin, AccessEcon, vol. 34(2), pages 1247-1258.
    8. Nidhaleddine Ben Cheikh & Christophe Rault, 2017. "Investigating first-stage exchange rate pass-through: Sectoral and macro evidence from euro area countries," The World Economy, Wiley Blackwell, vol. 40(12), pages 2611-2638, December.
    9. Kees Folmer, 2009. "Why do macro wage elasticities diverge?," CPB Memorandum 224, CPB Netherlands Bureau for Economic Policy Analysis.
    10. Guglielmo Maria Caporale & Christophe Rault & Robert Sova & Anamaria Sova, 2009. "Financial Development and Economic Growth: Evidence from Ten New EU Members," Discussion Papers of DIW Berlin 940, DIW Berlin, German Institute for Economic Research.
    11. Odile Chagny & Frédéric Reynés & Henri Sterdyniak, 2002. "The equilibrium rate of unemployment : a theoretical discussion and an empirical evaluation for six OECD countries," Sciences Po publications n°2002-04, Sciences Po.
    12. repec:ipg:wpaper:2014-475 is not listed on IDEAS
    13. repec:ipg:wpaper:2014-481 is not listed on IDEAS
    14. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.
    15. Arouri, Mohamed El Hedi & Ben Youssef, Adel & M'henni, Hatem & Rault, Christophe, 2014. "Exploring the Causality Links between Energy and Employment in African Countries," IZA Discussion Papers 8296, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    labour market; ws-ps model; equilibrium unemployment; cointegration; conditional VAR-ECM model;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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