Working Paper: CEPR ID: DP1176
Authors: Dennis J. Snower; Marika Karanassou
Abstract: This paper views movements in unemployment as the result of the interaction between: (a) lags in labour market decisions; and (b) labour market shocks with temporary and permanent components. Two features of unemployment dynamics are examined: (i) `unemployment persistence', arising when temporary shocks have persistent effects on unemployment; and (ii) `imperfect unemployment responsiveness', arising when the full effects of permanent shocks are delayed. An empirical model of aggregate labour maket activity in Germany, the United Kingdom, and the United States is constructed, and the sources of persistence and imperfect responsiveness are evaluated in this context.
Keywords: unemployment; employment; wage setting; labour force participation; labour market dynamics; unemployment persistence; imperfect unemployment responsiveness
JEL Codes: J21; J23; J31; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labor market lags + labor market shocks (J29) | unemployment dynamics (J64) |
| temporary labor demand shocks (J23) | prolonged effects on unemployment (J65) |
| permanent shocks (E32) | delayed effects on unemployment (J65) |
| labor market policies (J48) | labor market outcomes (J48) |