Complementarity of Labour Market Institutions, Equilibrium Unemployment and the Persistence of Business Cycles

Michael Burda and Mark Weder

No 2592, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper evaluates complementarities of labour market institutions and the business cycle in the context of a stochastic dynamic general equilibrium model economy. Matching between workers and vacancies with endogenous time spent in search, Nash-bargained wages, payroll taxation, and differential support for unemployed labour in search and leisure are central aspects of the model. For plausible regions of the policy and institutional parameter space, the model exhibits more persistence than standard RBC models and can exhibit indeterminacy of rational expectation paths without increasing returns in production. Furthermore, labour market institutions act in a complementary fashion in generating these

Keywords: Business cycles; European labour markets; Indeterminacy (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2000-10
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Working Paper: Complementarity of labor market institutions, equilibrium unemployment and the persistence of business cycles (1999)
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