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Natural and Cyclical Unemployment in Latvia: New Insights from the Beveridge Curve Model

Olegs Krasnopjorovs
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Olegs Krasnopjorovs: Bank of Latvia

Authors registered in the RePEc Author Service: Oleg Krasnopjorov ()

No 2015/02, Discussion Papers from Latvijas Banka

Abstract: Whether current unemployment in Latvia is mostly structural or cyclical recently provoked an intense debate among policy makers and academic researchers. This paper follows the method proposed by Barlevy (2011) to estimate natural and cyclical components of unemployment from the Beveridge curve model. It finds that at the end of 2014 unemployment in Latvia was quite similar to its natural rate. Zero cyclical component of unemployment suggests that aggregate-demand-stimulating policies would not bring unemployment down without creating inflationary pressures and competitiveness loss and, therefore, are not a preferred option. Instead, raising matching efficiency between the unemployed and vacancies would decrease natural unemployment from its current high of about 11%. Moreover, it was found that the lowest matching efficiency between the unemployed and vacancies is present among workers (compared to managers and professionals) and typical for Latgale region. This might reflect significant structural problems rather than low business cycle synchronisation with the other occupational groups and regions.

Keywords: unemployment; vacancies; Beveridge curve; cyclical unemployment; natural unemployment; structural unemployment (search for similar items in EconPapers)
JEL-codes: J63 J64 E24 E60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cis and nep-mac
Date: 2015-07-03
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