The EU-US Unemployment Puzzle Revisited: Insitutions, Demography, and Capital Flows

Luca Marchiori (), Olivier Pierrard and Henri Sneessens

JODE - Journal of Demographic Economics, 2017, vol. 83, issue 3, 259-305

Abstract: The historical evolution of the EU–US unemployment-rate gap is often explained in the literature in terms of asymmetric changes in labor-market institutions. There may well also be asymmetries in population aging, which may generate international capital flows and have substantial impacts on relative unemployment rates. In this paper, we ask whether the combination of institutions, aging, and capital flows explains the rise in the unemployment gap between 1960 and 2010. To this end, we set up a two-region OLG model with search unemployment in which we introduce the historical and projected changes in labor-market institutions and demographics. We show that asymmetric institutional changes alone can reproduce a large part of the historical rise in the unemployment gap. However, this result no longer holds once we add asymmetric aging in closed economies. We find this initial result again, and in an even stronger form, when we allow for international capital mobility.

Keywords: Demographics; Capital flows; Overlapping generations; Unemployment (search for similar items in EconPapers)
JEL-codes: C68 D91 F21 J11 (search for similar items in EconPapers)
Date: 2017-09-01
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Citations: View citations in EconPapers (6)

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Journal Article: THE EU–US UNEMPLOYMENT PUZZLE REVISITED: INSTITUTIONS, DEMOGRAPHY, AND CAPITAL FLOWS (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvde:v:83:y:2017:i:3:p:259-305

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