Cross-country differences in unemployment: fiscal policy,unions and household preferences in general equilibrium
Brecht Boone and
Freddy Heylen
Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration
Abstract:
We develop and parameterize an overlapping generations model that explains hours worked, education, and unemployment within one coherent framework. We extend previous work in this tradition by introducing individuals with heterogeneous ability and a unionized labour market for lower ability workers. Unemployment is due to above market-clearing wages for these workers. Our calibrated model's predictions match the facts remarkably well in a sample of continental European, Nordic and Anglo-Saxon countries. We then use the model to explain the cross-country variation in unemployment. A Shapley decomposition reveals an almost equal role for differences in fiscal policy variables and in union preferences. Both account for about half of the explained variation in unemployment rates. While it is the above market-clearing wage chosen by the unions that directly leads to unemployment, the fiscal policy variables determine most of its magnitude. As to specific fiscal variables, differences in unemployment benefit generosity play a much more important role than tax differences. Controlling for fiscal variables and union preferences, any differences in the taste for leisure of the households have no role to play in determining cross-country variation in unemployment.
Pages: 48 pages
Date: 2015-02
New Economics Papers: this item is included in nep-dge, nep-eec and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)
Downloads: (external link)
http://wps-feb.ugent.be/Papers/wp_15_899.pdf (application/pdf)
Related works:
Journal Article: Cross‐Country Differences in Unemployment: Fiscal Policy, Unions, and Household Preferences in General Equilibrium (2019) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:15/899
Access Statistics for this paper
More papers in Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration Contact information at EDIRC.
Bibliographic data for series maintained by Nathalie Verhaeghe ().