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Shocks and Institutions in a Job Matching Model

Wouter Den Haan, Christian Haefke () and Garey Ramey
Authors registered in the RePEc Author Service: Wouter Denhaan ()

No 8463, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper explains the divergent behavior of European and US unemployment rates using a job market matching model of the labor market with an interaction between shocks and institutions. It shows that a reduction in TFP growth rates, an increase in real interest rates, and an increase in tax rates leads to a permanent increase in unemployment rates when the replacement rates or initial tax rates are high, while no increase in unemployment occurs when institutions are 'employment friendly.' The paper also shows that an increase in turbulence, modeled as an increased probability of skill loss, is not a robust explanation for the European unemployment puzzle in the context of a matching model with both endogenous job creation and job destruction.

JEL-codes: E24 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-lab
Date: 2001-09
Note: EFG
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