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Title:Unemployment in the European Union: institutions, prices, and growth PDF Logo
Authors:Karanassou, Marika
Sala, Héctor
Snower, Dennis J.
Issue Date:2003
Series/Report no.:Working paper series, Department of Economics, Queen Mary College, London 493
Abstract:This paper presents a reappraisal of unemployment movements in the European Union. Our analysis is based on the chain reaction theory of unemployment, which focuses on (a) the interaction among labor markets adjustment processes, (b) the interplay between these adjustment processes and the dynamic structure of labor market shocks, and (c) the interaction between the adjustment processes and economic growth. We divide the shocks into institutional variables, price variables, and growth drivers. Estimating a system of labor market equations for a panel of EU countries, we derive the dynamic unemployment responses to each shock. Our analysis permits us to distinguish between the short- and long-run effects of the shocks. Different shocks generate different degrees of "unemployment persistence" (responses to temporary shocks) and "unemployment responsiveness" (responses to permanent shocks). We find that the growth drivers play a dominant role in accounting for the main swings in EU unemployment.
Subjects:Unempolyment ; natural rate ; labor market shocks ; chain reaction theory ; employment ; labor force participation ; wage determination
JEL:J64
J60
J32
E37
E30
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Working Paper Series, School of Economics and Finance, Queen Mary, University of London

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