Competition between unemployed and non-participants, and unemployment hysteresis

Frank A.G. den Butter, Egbert L.W. Jongen and Udo Kock
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Frank A.G. den Butter: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics

No 13, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: This paper considers labour supply and demand shocks in a simple flow model of the labour market. We explicitly model the propagation of shocks and the adjustment mechanisms. By way of simulations we explore the extent of labour market hysteresis arising from negative duration dependence and the so-called entitlement effect that arises when social security provisions become more generous. The main findings of our modelling exercise are: (i) the extent of hysteresis depends very much on the way labour demand reacts to labour supply, (ii) negative duration dependence adds to unemployment hysteresis, and, (iii) the degree of hysteresis depends on the type of the shock.

Keywords: unemployment persistence; labour market flows (search for similar items in EconPapers)
JEL-codes: J63 J64 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:vua:wpaper:1999-13

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