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Unemployment at risk: the policy determinants of labour market exposure to economic shocks

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Listed:
  • Alain de Serres

    (Economics department - MIT - Massachusetts Institute of Technology)

  • Fabrice Murtin

    (Economics department - MIT - Massachusetts Institute of Technology)

Abstract

This paper examines the vulnerability of labour markets to adverse economic shocks. We define labour market exposure as the cumulated amount of excess unemployment generated by a shock before unemployment returns to steady-state. We use a panel of 19 countries covering the period 1985–2010 to assess the influence of labour market policies on labour market exposure, which is also calculated country by country. We find that less generous unemployment insurance, more active labour market policies or a lower minimum wage imply a trade-off between average unemployment and labour market exposure, as they help low-skilled workers to get out of unemployment at the cost of increased vulnerability to adverse shocks. On the other hand, reducing the tax wedge is conducive to both lower steady-state unemployment and labour market exposure.

Suggested Citation

  • Alain de Serres & Fabrice Murtin, 2014. "Unemployment at risk: the policy determinants of labour market exposure to economic shocks," Post-Print hal-03460398, HAL.
    • Handle: RePEc:hal:journl:hal-03460398
    DOI: 10.1111/1468-0327.12038
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03460398
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    6. Görg, Holger & Henze, Philipp & Jienwatcharamongkhol, Viroj & Kopasker, Daniel & Molana, Hassan & Montagna, Catia & Sjöholm, Fredrik, 2017. "Firm size distribution and employment fluctuations: Theory and evidence," Research in Economics, Elsevier, vol. 71(4), pages 690-703.
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