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Re-examining the Structural and the Persistence Approach to Unemployment

  • T. BERGER

    ()

  • G. EVERAERT

    ()

This paper examines the relative importance of the structural and the persistence approach to unemployment. We set out a standard imperfect competition model that decomposes observed unemployment into a structural and a persistent cyclical component. The natural rate of unemployment is treated as an unobserved variable that has observable effects on the measured unemployment rate, output and prices. The multivariate unobserved component model is estimated for the US and the euro area using Bayesian techniques and the Kalman filter. The results show that although cyclical shocks are very persistent, most of the increase in European unemployment is driven by structural factors. The degree of persistence is somewhat lower in the US but demand shocks seem to be more important in explaining variation of unemployment.

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File URL: http://wps-feb.ugent.be/Papers/wp_06_383.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 06/383.

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Length: 28 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:rug:rugwps:06/383
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Phone: ++ 32 (0) 9 264 34 61
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Web page: http://www.ugent.be/eb

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  1. Silvia Fabiani & Ricardo Mestre, 2004. "A system approach for measuring the euro area NAIRU," Empirical Economics, Springer, vol. 29(2), pages 311-341, 05.
  2. David H. Papell & Christian J. Murray & Hala Ghiblawi, 2000. "The Structure of Unemployment," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 309-315, May.
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  4. Karanassou, Marika & Snower, Dennis J., 1998. "How Labour Market Flexibility Affects Unemployment: Long-Term Implications of the Chain Reaction Theory," CEPR Discussion Papers 1826, C.E.P.R. Discussion Papers.
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  8. S. J. Koopman & J. Durbin, 2003. "Filtering and smoothing of state vector for diffuse state-space models," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(1), pages 85-98, 01.
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  10. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678.
  11. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
  12. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
  13. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  14. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
  15. Roed, Knut, 1997. " Hysteresis in Unemployment," Journal of Economic Surveys, Wiley Blackwell, vol. 11(4), pages 389-418, December.
  16. Pantula, Sastry G, 1991. "Asymptotic Distributions of Unit-Root Tests When the Process Is Nearly Stationary," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(1), pages 63-71, January.
  17. Salemi, Michael K, 1999. "Estimating the Natural Rate of Unemployment and Testing the Natural Rate Hypothesis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-25, Jan.-Feb..
  18. Fabrice Orlandi & Karl Pichelmann, 2000. "Disentangling trend and cycle in the EUR-11 unemployment series," European Economy - Economic Papers 140, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  19. Francesco Daveri, 2002. "Labor Taxes and Unemployment: a Survey of the Aggregate Evidence," CeRP Working Papers 18, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  20. Fagan, Gabriel & Henry, Jérôme & Mestre, Ricardo, 2001. "An area-wide model (AWM) for the euro area," Working Paper Series 0042, European Central Bank.
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