European Unemployment and Turbulence Revisited in a Matching Model

Lars Ljungqvist and Thomas Sargent

Journal of the European Economic Association, 2004, vol. 2, issue 2-3, 456-468

Abstract: We recalibrate den Haan, Haefke, and Ramey's matching model to incorporate our preferred specification of "turbulence" as causing distinct dynamics of human capital after voluntary and involuntary job losses. Under our calibration, with high unemployment benefits, an increase in turbulence increases the unemployment rate and the duration of unemployment while leaving the inflow rate into unemployment roughly unchanged, mirroring features of European data in the 1980s and 1990s. The essential issue is that den Haan, Haefke, and Ramey specify that in turbulent times workers experiencing layoffs and quits are both subject to instantaneous skill losses, while we restrict instantaneous skill losses to laid-off workers. (JEL: E24, J64) Copyright (c) 2004 The European Economic Association.

Date: 2004
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