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Title:Some evidence on the relevance of the chain-reaction theory in selected countries PDF Logo
Authors:Hofer, Helmut
Kunst, Robert M.
Schwarzbauer, Wolfgang
Schuh, Ulrich
Snower, Dennis J.
Issue Date:2007
Series/Report no.:Reihe Ökonomie, Institut für Höhere Studien und Wissenschaftliche Forschung (IHS) 207
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 the permanent 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.
Subjects:Unemployment; natural rate hypothesis; labour markets; employment; adjustment costs
Document Type:Working Paper
Appears in Collections:Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS)
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