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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: University of Amsterdam

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

No 1403, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 new jobs 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.

Keywords: European unemployment puzzle; skill loss (search for similar items in EconPapers)
JEL-codes: E24 J64 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge
Date: 2004-11
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Published in: Journal of the European Economic Association, 2005, 3 (6), 1360-1385

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Journal Article: Turbulence And Unemployment In A Job Matching Model (2005) Downloads
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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
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