Modeling the Unemployment Rate with Simultaneous Equations

Denis Vîntu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper develops and estimates a simultaneous equations model to analyze the determinants of unemployment in [Country/Region]. By jointly modeling labor supply, labor demand, and wage-setting behavior, the study captures the complex interactions influencing the unemployment rate. Using [time series/panel/cross-sectional] data from [years], the model incorporates key labor market factors such as wage dynamics, job creation, and job separation rates. The results reveal significant simultaneous relationships between unemployment, wages, and labor market participation, highlighting the importance of considering endogeneity in labor market analysis. Policy simulations based on the estimated system provide insights into effective interventions to reduce unemployment and improve labor market efficiency.

Keywords: Simultaneous equations model; Labor market equilibrium; Unemployment rate determination; Wage-setting equation; Price-setting equation; Beveridge curve; Job matching function; Phillips curve; Structural unemployment; Natural rate of unemployment; Labor supply and demand; Endogenous unemployment; Disequilibrium model; Employment dynamics; Wage-unemployment relationship; Aggregate labor market model; Multivariate system estimation; Identification problem; Reduced form equations; Equilibrium unemployment rate (search for similar items in EconPapers)
JEL-codes: C30 C31 C32 C33 C51 J64 J65 J68 (search for similar items in EconPapers)
Date: 2025-08-10, Revised 2025-08-10
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