Labor Market Institutions and the Cost of Recessions
Martin Scheffel (dr.martin.scheffel@gmail.com) and
Tom Krebs
No 1438, 2017 Meeting Papers from Society for Economic Dynamics
Abstract:
This paper studies the effect of two labor market institutions, unemployment insurance (UI) and job search assistance (JSA), on the output cost and welfare cost of recessions. The paper develops a tractable incomplete-market model with search unemployment, skill depreciation during unemployment, and idiosyncratic as well as aggregate labor market risk. The theoretical analysis shows that an increase in JSA and a reduction in UI reduce the output cost of recessions by making the labor market more fluid along the job finding margin and thus making the economy more resilient to macroeconomic shocks. In contrast, the effect of JSA and UI on the welfare cost of recessions is in general ambiguous. The paper also provides a quantitative application to the German labor market reforms of 2003-2005, the so-called Hartz reforms, which improved JSA (Hartz III reform) and reduced UI (Hartz IV reform). According to the baseline calibration, the two labor market reforms led to a substantial reduction in the output cost of recessions and a moderate reduction in the welfare cost of recessions in Germany.
Date: 2017
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations: View citations in EconPapers (5)
Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2017/paper_1438.pdf (application/pdf)
Related works:
Working Paper: Labor Market Institutions and the Cost of Recessions (2017) 
Working Paper: Labor Market Institutions and the Cost of Recessions (2016) 
Working Paper: Labor Market Institutions and the Cost of Recessions (2016) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1438
Access Statistics for this paper
More papers in 2017 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann (chuichuiche@gmail.com).