Working Paper: CEPR ID: DP960
Authors: Assar Lindbeck; Dennis J. Snower
Abstract: The paper presents a stochastic insider-outsider model that accounts for the following stylized facts: (1) unemployment rates display a high degree of serial correlation, or `persistence'; (2) the average rate of unemployment has been higher in the United States than in Europe over the 1950s and 1960s, but the opposite has been the case in the 1980s; and (3) the long-run unemployment rate is independent of the level of productivity and the magnitude of the labour force. The model also generates other empirically testable hypotheses, concerning cyclical variations in unemployment persistence, the influence of firing costs and the `discouraged worker' effect on unemployment persistence, and the effect of barriers to the entry of firms on the long-run unemployment rate.
Keywords: unemployment; insiders; outsiders; persistence; productivity; labour force
JEL Codes: J31; J32; J38; J63; J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher firing costs (L97) | greater unemployment persistence (J64) |
| higher firms' hiring rates (M51) | higher unemployment persistence (J64) |
| higher firms' retention rates (M51) | lower unemployment persistence (J64) |
| economic conditions (E66) | unemployment rates (J64) |
| discouraged worker effect (J68) | unemployment persistence (J64) |
| labor turnover costs (J63) | employment dynamics (J63) |