Sources of Persistence in Employment Adjustment--Denmark 1974-93

Torben M Andersen and Svend Hylleberg

Oxford Economic Papers, 2000, vol. 52, issue 1, 72-95

Abstract: This paper aims at identifying and quantifying different sources of persistency in employment adjustment. Based on a dynamic labour market model an explicit distinction is made between real and nominal (prices and wage) propagation mechanisms. The theoretical analysis provides the basis for an empirical analysis of nominal wages, nominal prices, and employment for the manufacturing sector in Denmark from 1974.1 to 1993.4. We find that nominal rigidities prevail in the short run and that nominal propagation mechanisms play a larger role than real propagation mechanisms. The persistency mechanism identified here are substantial from a business cycle perspective, but not in relation to the span of time over which unemployment has persisted at a high level. Copyright 2000 by Oxford University Press.

Date: 2000
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