Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/3269
Authors: 
Karanassou, Marika
Sala, Héctor
Snower, Dennis J.
Year of Publication: 
2004
Series/Report no.: 
CESifo Working Paper 1247
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 market 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 longrun 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: 
Unemployment
Labor market shocks
Chain reaction theory
Employment
Labor force participation
Wage determination
Natural rate
JEL: 
E30
J64
E37
J32
J60
Document Type: 
Working Paper

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