Global Shocks and Unemployment Adjustment

Ronald Smith and Gylfi Zoega

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: The literature on unemployment dynamics is mainly concerned with the nature and impact of shocks to unemployment. In this paper we use OECD unemployment data to infer the nature of these shocks using factor analysis. We find that two Principal Components can account for a large part of the variance of unemployment between and within countries. We then use regression analysis in which equilibrium unemployment depends on a global shock and domestic labour market institutions, and the institutions also determine the response to global shocks and the speed of convergence to equilibrium. We find that national unemployment series do converge to a moving equilibrium and that the responsiveness shocks and the speed of convergence to equilibrium also change over time as domestic labour market institutions change. The calculation of the Principal Components is suggestive of the possible economic causes of long swings in unemployment.

Keywords: Unemployment dynamics; Principal Components; labour-market institutions. (search for similar items in EconPapers)
JEL-codes: E2 J1 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2004-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Global Shocks and Unemployment Adjustment (2004)
Working Paper: Global Shocks and Unemployment Adjustment (2004)
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