The Impacts of Structural Changes in the Labor Market: a Comparative Statics Analysis Using Heterogeneous-agent Framework

Carlos Miguel Silva () and Ana Ribeiro
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Carlos Miguel Silva: Faculdade de Economia da Universidade do Porto and CEF.UP

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: In this paper we aim at analyzing the impacts on welfare and wealth and consumption distribution across different labor market structural features. In particular, we pursue a steady-state analysis to assess the impacts of unit vacancy costs, unemployment replacement ratio or the job destruction rate, when they are changed in order to promote a given reduction in the unemployment rate. We combine a labor market search and matching framework with unions, based on Mortensen and Pissarides (1994) with a heterogeneous-agent framework close to Imrohoroglu (1989) in a closed economy model. Such approach enables the joint assessment of macroeconomic welfare and inequality together with implications derived from institutional changes in labor market. Moreover, the transition matrix between worker's states is endogenous, fully derived from labor market conditions. Using feasible calibration to the Euro Area, we conclude that different institutional changes to promote unemployment reduction have non-neutral and differentiated effects on welfare and inequality. While changing unit vacancy costs and job destruction can be ranked, changes in the unemployment benefit replacement ration involve a trade-off between gains in welfare and in consumption/income distribution.

Keywords: Labor market institutions; search and matching models; heterogeneous-agent models; welfare and inequality. (search for similar items in EconPapers)
JEL-codes: E21 E24 E27 I30 J64 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-07
New Economics Papers: this item is included in nep-dge, nep-lab and nep-mac
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