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Turbulence And Unemployment In A Job Matching Model

Wouter J. den Haan, Christian Haefke () and Garey Ramey
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Wouter J. den Haan: London Business School,

Authors registered in the RePEc Author Service: Wouter Denhaan ()

Journal of the European Economic Association, 2005, vol. 3, issue 6, 1360-1385

Abstract: According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse newjobs due to high unemployment benefits. In this paper we reassess the turbulence-unemployment relationship using a matching model with endogenous job destruction. In our model, higher turbulence reduces the incentives of employed workers to leave their jobs. If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment. Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers. (JEL: E24, J64) Copyright (c) 2005 by the European Economic Association.

Date: 2005
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Working Paper: Turbulence and Unemployment in a Job Matching Model (2004) Downloads
Working Paper: Turbulence and Unemployment in a Job Matching Model (2004) Downloads
Working Paper: Turbulence and Unemployment in a Job Matching Model (2004) Downloads
Working Paper: Turbulence and unemployment in a job matching model (2004) Downloads
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