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Labor supply shocks and unemployment persistence

Author

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  • Butter, Frank A.G. den

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

  • Jongen, Egbert L.W.
  • Kock Udo

Abstract

Our small empirical stock-flow model for the Dutch economy, which endogenizes the adjustment dynamics to (un)employment search equilibria, identifies two mechanisms that caused persistente in labor market adjustments: (i) job competition from non-participants, and (ii) asymmetrie adjustments to cyclical shocks. At the core of the model is an estimated matching function. Using Dutch flow data for the period 1970-1997 we tìnd that the search effectiveness of individuals on welfare benefits and non-participation is 0.33 respectively 0.05 of the search effectiveness of individuals receiving unemployment insurance. In accordance with actual developments in the reference period, our model simulations show that, when the flow from non-participants into the labor market rises permanently, the unemployment rate rises quickly and stabilizes at a higher leve1 whereas employment continues to rise. Yet, a sensitivity analysis with altemative assumptions on the type of supply shocks and the reaction of labor demand to these shocks indicates that the adjustment dynamics, and hence the degree of persistente, depend much on the search behavior of non-participants.

Suggested Citation

  • Butter, Frank A.G. den & Jongen, Egbert L.W. & Kock Udo, 2001. "Labor supply shocks and unemployment persistence," Serie Research Memoranda 0017, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    • Handle: RePEc:vua:wpaper:2001-17
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    References listed on IDEAS

    as
    1. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages 283-306, June.
    2. den Butter, Frank A. G. & Gorter, Cees, 1999. "Modelling labour market dynamics with on-the-job search," Economic Modelling, Elsevier, vol. 16(4), pages 545-567, December.
    3. Kock, Udo, 1998. "Constructing labour market flows for the Netherlands using macro data from social security provisions : 1970-1995," Serie Research Memoranda 0040, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    4. Broersma, Lourens & Van Ours, Jan C., 1999. "Job searchers, job matches and the elasticity of matching," Labour Economics, Elsevier, vol. 6(1), pages 77-93, March.
    5. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
    6. van Ours, Jan C., 1995. "An empirical note on employed and unemployed job search," Economics Letters, Elsevier, vol. 49(4), pages 447-452, October.
    7. Lourens Broersma, 1997. "Competition between employed and unemployed job searchers: is there a difference between the UK and The Netherlands?," Applied Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 199-203.
    8. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    labor supply; matching models; unemployment persistence; labor market dynamics;
    All these keywords.

    JEL classification:

    • 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
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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