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Why are labor markets in Spain and Germany so different?

Miguel Casares () and Jesús Vázquez

Economic Modelling, 2018, vol. 75, issue C, 320-335

Abstract: The volatility of unemployment fluctuations has been about 3 times higher in Spain than in Germany over the recent business cycles (1996–2013). Besides, the rates of unemployment of these two countries have moved on opposite directions featuring negative cross correlation. We estimate a DSGE model with unemployment and find these explanatory factors: (i) wage rigidity has been higher in Spain, (ii) the elasticity of hours per worker has been lower in Spain, (iii) labor force shocks have been stronger and more persistent in Spain, (iv) risk-premium shocks have deteriorated labor demand in Spain while fiscal/net exports shocks have stimulated labor demand in Germany, and (v) the idiosyncratic shocks from the ECB single monetary policy have switched from reducing Spanish unemployment (before 2007) to increasing it (after 2007).

Keywords: Unemployment; Germany and Spain; DSGE models (search for similar items in EconPapers)
JEL-codes: E12 E23 E32 (search for similar items in EconPapers)
Date: 2018
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