Characteristics of Unemployment Dynamics: The Chain Reaction Approach
The aim of this paper is to analyze and estimate salient characteristics of unemployment dynamics. Movements in unemployment are viewed as ‘ ‘ chain reactions’’ of responses to labor market shocks, working their way through systems of interacting lagged adjustment processes. In the context of estimated labor market systems for Germany, the UK, and the US, we construct aggregate measures of unemployment responses to temporary and permanent shocks. These measures are temporal (depicting how long it takes for unemployment to reach long-run equilibrium) and quantitative (depicting the cumulative amount of unused labor resources generated in the aftermath of a shock). Furthermore, we estimate the contributions of individual lagged adjustments to these aggregate measures. Our empirical results indicate that (i) lagged adjustment processes play an important part in explaining how temporary and permanent shocks affect unemployment, (ii) temporary and permanent shocks can yield quite different inter-country comparisons of unemployment effects, and (iii) the quantitative and temporal measures can also yield markedly different inter-country comparisons. This analysis provides insights into the driving forces underlying the movements of unemployment in the countries above.
|Date of creation:||Mar 2000|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lindbeck, Assar & Snower, Dennis J., 1987. "Union activity, unemployment persistence and wage-employment ratchets," European Economic Review, Elsevier, vol. 31(1-2), pages 157-167.
- Olivier J. Blanchard & Lawrence H. Summers, 1986.
"Hysteresis and the European Unemployment Problem,"
427, Massachusetts Institute of Technology (MIT), Department of Economics.
- Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
- repec:fth:inseep:9645 is not listed on IDEAS
- Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
- Lindbeck, Assar & Snower, Dennis J, 1994.
"How Are Product Demand Changes Transmitted to the Labour Market?,"
Royal Economic Society, vol. 104(423), pages 386-98, March.
- Lindbeck, Assar & Snower, Dennis J., 1993. "How are Product Demand Changes Transmitted to the Labour Market?," CEPR Discussion Papers 844, C.E.P.R. Discussion Papers.
- Layard, Richard & Bean, Charles, 1989.
" Why Does Unemployment Persist?,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 91(2), pages 371-96.
- Nickell, S J, 1978. "Fixed Costs, Employment and Labour Demand over the Cycle," Economica, London School of Economics and Political Science, vol. 45(180), pages 329-45, November.
- Lindbeck, Assar & Snower, Dennis J, 1987. "Strike and Lock-Out Threats and Fiscal Policy," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 760-84, December.
- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
- Pesaran, M.H., 1996.
"The Role of Economic Theory in Modelling the Long Run,"
Cambridge Working Papers in Economics
9612, Faculty of Economics, University of Cambridge.
- Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-91, January.
- Lindbeck, Assar & Snower, Dennis J, 1990. "Cooperation, Harassment, and Involuntary Unemployment: Reply," American Economic Review, American Economic Association, vol. 80(3), pages 631-36, June.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp127. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.