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Modeling the Unemployment Rate with Simultaneous Equations

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  • Vîntu, Denis

Abstract

This paper develops and estimates a simultaneous equations model to analyze the determinants of unemployment in [Country/Region]. By jointly modeling labor supply, labor demand, and wage-setting behavior, the study captures the complex interactions influencing the unemployment rate. Using [time series/panel/cross-sectional] data from [years], the model incorporates key labor market factors such as wage dynamics, job creation, and job separation rates. The results reveal significant simultaneous relationships between unemployment, wages, and labor market participation, highlighting the importance of considering endogeneity in labor market analysis. Policy simulations based on the estimated system provide insights into effective interventions to reduce unemployment and improve labor market efficiency.

Suggested Citation

  • Vîntu, Denis, 2025. "Modeling the Unemployment Rate with Simultaneous Equations," MPRA Paper 125708, University Library of Munich, Germany, revised 10 Aug 2025.
    • Handle: RePEc:pra:mprapa:125708
    as

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    References listed on IDEAS

    as
    1. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    2. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    3. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    4. Murphy, Kevin M & Welch, Finis, 1990. "Empirical Age-Earnings Profiles," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 202-229, April.
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    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • 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
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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