Labor market institutions and the business cycle: The role of unemployment fears

Marcin Bielecki, Marcin Kolasa and Paweł Kopiec ()

No 2023-096, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: We study the effects of labor market institutions (LMIs) in a general equilibrium model with search and matching frictions, endogenous separations, nominal rigidities, and uninsurable unemployment risk. By contrasting the US and EA, which are characterized by different degrees of employment protection and unemployment insurance schemes, we show that these LMIs have important implications for the transmission of standard aggregate demand and (even more so) supply shocks. In particular, if US unemployment benefits were increased during recessions to the levels typically observed in the EA, fluctuations in employment could be significantly reduced, bringing the outcomes close to the case of full unemployment insurance assumed by representative agent models. Similar effects can be obtained by subsidizing wages or introducing partial employment protection during recessions, especially if these are driven by changes in aggregate productivity.

Keywords: labor market institutions; search and matching; heterogeneous agents; unemployment risk; general equilibrium (search for similar items in EconPapers)
JEL-codes: D52 E21 E24 E32 J64 J68 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2023-12
New Economics Papers: this item is included in nep-dge and nep-lab
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/20.500.12182/1204 (application/pdf)

Related works:
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:sgh:kaewps:2023096

Access Statistics for this paper

More papers in KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Dariusz Nojszewski ().