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"Mismatch" in the labor market and inflation: An integrative model with lessons from the Spanish experience

Author

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  • Pérez Trujillo, Manuel
  • Ruesga Benito, Santos
  • Sell, Friedrich L.

Abstract

The Great Recession (2009/10) resulted in the need of different economic policies and structural reforms to boost economic growth both in the advanced and in the emerging economies. In this paper, we start from a theoretical concept that is relatively new - the modified output gap (MOG), based on both the Phillips and the Beveridge curve, initially introduced by Sell and Reinisch (2013) and Sell (2016), revealing the explicit positive relationship between the vacancy ratio on the one hand and the inflation rate on the other hand. Empirically, we estimate this relationship by developing three different panel data models: Fixed Effects (FE), Random Effects (RE) and a GMM System (Generalized Method of Moments). The obtained results show that the loss in the efficiency of matching in the labor market combined with an increase in the demand in the markets for goods and services will push up inflation. We show the empirical relevance of the modified output gap for Spain during the Great Recession and explain how it affected the implementation of the economic stimulus plan that was introduced by the then socialist government in Spain with the aim of boosting the economy.

Suggested Citation

  • Pérez Trujillo, Manuel & Ruesga Benito, Santos & Sell, Friedrich L., 2018. ""Mismatch" in the labor market and inflation: An integrative model with lessons from the Spanish experience," Working Papers in Economics 2018,4, Bundeswehr University Munich, Economic Research Group.
    • Handle: RePEc:zbw:ubwwpe:20184
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    References listed on IDEAS

    as
    1. Anita Wölfl & Juan S. Mora-Sanguinetti, 2011. "Reforming the Labour Market in Spain," OECD Economics Department Working Papers 845, OECD Publishing.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Mario Izquierdo & Aitor Lacuesta & Sergio Puente, 2013. "La reforma laboral de 2012: un primer análisis de algunos de sus efectos sobre el mercado de trabajo," Boletín Económico, Banco de España, issue SEP, pages 55-64, Septiembr.
    4. Bart Hobijn & Aysegul Sahin, 2013. "Beveridge Curve Shifts across Countries since the Great Recession," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 566-600, December.
    5. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    6. repec:bla:obuest:v:64:y:2002:i:3:p:261-80 is not listed on IDEAS
    7. Friedrich L. Sell, 2016. "Combining the Beveridge and the Phillips Curve into an Integrative Model: The Modified Output Gap," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 1-12, May.
    8. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    9. Howard J. Wall & Gylfi Zoega, 2002. "The British Beveridge curve: A tale of ten regions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 257-276, July.
    10. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    mismatch; Beveridge curve; Philipps curve; modified output gap; great recession;
    All these keywords.

    JEL classification:

    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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