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Complementarity of labor market institutions, equilibrium unemployment and the persistence of business cycles


  • Burda, Michael C.
  • Weder, Mark


This paper evaluates complementarities of labor market institutions and the business cycle in the context of a stochastic dynamic general equililbriurn model econorny. Matching between workers and vacancies with endogenous search intensity, Nash-bargained wages, payroll taxation, and differential support for unemployed labor in search and leisure are central aspects of the model. For plausible regions of the policy and institutional parameter space, the model exhibits more persistence than standard RBC models and often indeterminacy of rational expectations paths without increasing returns in production. Furtherrnore~ labor rnarket institutions act in a complementary fashion in generating these effects.

Suggested Citation

  • Burda, Michael C. & Weder, Mark, 1999. "Complementarity of labor market institutions, equilibrium unemployment and the persistence of business cycles," SFB 373 Discussion Papers 1999,49, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  • Handle: RePEc:zbw:sfb373:199949

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    References listed on IDEAS

    1. Drost, Feike C & Nijman, Theo E, 1993. "Temporal Aggregation of GARCH Processes," Econometrica, Econometric Society, vol. 61(4), pages 909-927, July.
    2. Palm, Franz C & Nijman, Theo E, 1984. "Missing Observations in the Dynamic Regression Model," Econometrica, Econometric Society, vol. 52(6), pages 1415-1435, November.
    3. Drost, Feike C. & Werker, Bas J. M., 1996. "Closing the GARCH gap: Continuous time GARCH modeling," Journal of Econometrics, Elsevier, vol. 74(1), pages 31-57, September.
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    Cited by:

    1. Michael C. Burda & Mark Weder, 2016. "Payroll Taxes, Social Insurance, And Business Cycles," Journal of the European Economic Association, European Economic Association, vol. 14(2), pages 438-467, April.

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles


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