Unemployment at risk: the policy determinants of labour market exposure to economic shocks

Alain de Serres and Fabrice Murtin
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Alain de Serres: Economics department - MIT - Massachusetts Institute of Technology

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Abstract: This paper examines the vulnerability of labour markets to adverse economic shocks. We define labour market exposure as the cumulated amount of excess unemployment generated by a shock before unemployment returns to steady-state. We use a panel of 19 countries covering the period 1985–2010 to assess the influence of labour market policies on labour market exposure, which is also calculated country by country. We find that less generous unemployment insurance, more active labour market policies or a lower minimum wage imply a trade-off between average unemployment and labour market exposure, as they help low-skilled workers to get out of unemployment at the cost of increased vulnerability to adverse shocks. On the other hand, reducing the tax wedge is conducive to both lower steady-state unemployment and labour market exposure.

Keywords: Unemployment; Labour market policies; Adverse economic shocks (search for similar items in EconPapers)
Date: 2014-10
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Published in Economic Policy, 2014, 29 (80), pp.603 - 637. ⟨10.1111/1468-0327.12038⟩

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Journal Article: Unemployment at risk: the policy determinants of labour market exposure to economic shocks (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03460398

DOI: 10.1111/1468-0327.12038

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