Some Evidence on the Relevance of the Chain-reaction Theory in Selected Countries

Hofer, Helmut and Kunst, Robert M. and Schwarzbauer, Wolfgang and Schuh, Ulrich and Snower, Dennis J. (May 2007) Some Evidence on the Relevance of the Chain-reaction Theory in Selected Countries. IHS Economics Series 207

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Abstract or Table of Contents

Abstract: In this paper we challenge the traditional labour market view, which argues that unemployment is determined in the long-term by its equilibrium rate, which in turn is affected by permanent shocks of some exogenous variables. In our empirical approach we decompose the dynamics of employment and labour force into transitory and permanent components. We estimated a small labour market model using VAR techniques. By simulating the model we are able to quantify the relative importance of the permanent and transitory components for the movements of the unemployment rate in four countries (Austria, France, UK, and USA). We find that the transitory component has a significant impact on unemployment only in the US. In contrast to that thepermanent component appear to influence unemployment significantly in all included countries. In combination with the observation that labour market dynamics differ between countries, this may have powerful policy implications.;

Item Type: IHS Series
Keywords: 'Unemployment' 'Natural rate hypothesis' 'Labour markets' 'Employment' 'Adjustment costs'
Classification Codes (e.g. JEL): J32, J60, J64, E30, E37
Status: Published
Date Deposited: 26 Sep 2014 10:38
Last Modified: 23 Jul 2017 04:25
URI: http://irihs.ihs.ac.at/id/eprint/1768

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