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Pitfall in labour market flows modeling: a Reappraisal

Maurizio Baussola (), Camilla Ferretti and Chiara Mussida ()

No dises1722, DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: We discuss the relevance of the methodology adopted internationally to compare labor market flexibility, which is based on a two-state labor market model and uses stock data to derive transition rates. This model neglects inactivity, and thus it may crucially affect the results. Therefore, we compare these results with transition rates derived by using a three-state labor market model for France, Italy, Spain and the UK. These countries represent, respectively, the continental Europe and the Anglo-Saxon institutional settings. The implied transition rates are much higher even in continental Europe when inactivity is explicitly considered, thus suggesting that conclusions derived using an incomplete representation of the labor market are flawed.

Keywords: labour market flows; labour market transition matrices; inactivity; comparison across countries (search for similar items in EconPapers)
JEL-codes: J60 J62 C14 C15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur and nep-lab
Date: 2017-02
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