Labour market dynamics in a heterogeneous market

Cees Gorter and Guillemette de Larquier
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Cees Gorter: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics

No 48, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: This paper develops a flow model in a dual labour market with heterogeneous workers and heterogeneous jobs that allows for upward mobility or promotion flows via the internal market and demotion or deskilling flows through the state of unemployment. Dynamic impulse-responses analyses are used to examine the effects of labour market policies that aim to generate institutional changes in the wage bargaining process, make job creation less costly or job matching more efficiently to reduce unemployment, and increase competitiveness through a rise in labour productivity. We find that the usual trade-off between wages and employment shows up clearly as a result of changes in bargaining power. Moreover, the short-run and long-run effects on unemployment of active labour market policy instruments differ considerably dependent on which segment of the labour market is influenced initially. Finally, unemployment among workers without experience (skills) goes down most strongly when productivity gains are not directed to them directly, but - instead - realized for workers in the primary segment of the labour market.

JEL-codes: J42 J64 (search for similar items in EconPapers)
Date: 1999
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Persistent link: https://EconPapers.repec.org/RePEc:vua:wpaper:1999-48

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