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What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment

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Author Info
Olivier Blanchard
Pedro Portugal

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Abstract

Over the last 15 years, Portugal and the United States have had the same average unemployment rate, about 6.5%. But behind these similar rates hide two very different labor markets. Unemployment duration in Portugal is more than three times that of the United States. Symmetrically, the flow of workers into unemployment in Portugal is, in proportion to the labor force, less than a third of what it is in the United States. Relying on evidence from Portuguese and U.S. micro data sets, we show that these lower flows come in roughly equal proportions from lower job flows, and from lower worker flows relative to job flows. We then argue that these differences plausibly come from high employment protection in Portugal. We finally show how, looking across countries, higher employment protection is associated with lower flows and higher unemployment duration. In short, high employment protection makes economics more sclerotic; but because it affects unemployment duration and flows in opposite directions, it has an ambiguous effect on the unemployment rate.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6636.

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Date of creation: Jul 1998
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Publication status: published as Blanchard, Olivier and Pedro Portugal. "What Hides Behind An Unemployment Rate: Comparing Portuguese And U.S. Labor Markets," American Economic Review, 2001, v91(1,Mar), 187-207.
Handle: RePEc:nbr:nberwo:6636

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  7. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October. [Downloadable!] (restricted)
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  11. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Gilles Saint-Paul, 1999. "Assessing the political viability of labor market reform : the case of employment protection," Review, Federal Reserve Bank of St. Louis, issue May, pages 73-87. [Downloadable!]
    Other versions:
  3. Justin Wolfers, 2005. "Measuring the Effects of Employment Protection on Job Flows: Evidence from Seasonal Cycles," Computing in Economics and Finance 2005 98, Society for Computational Economics. [Downloadable!]
  4. Chen, Yu-Fu & Snower, Dennis J. & Zoega, Gylfi, 2002. "Labour Market Institutions and Macroeconomic Shocks," CEPR Discussion Papers 3480, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Tobias Linzert, 2005. "The Unemployment Inflation Trade-Off in the Euro Area," IZA Discussion Papers 1699, Institute for the Study of Labor (IZA). [Downloadable!]
  6. Jasper Hoek, 2002. "Labor Market Institutions and Restructuring: Evidence from Regulated and Unregulated Labor Markets in Brazil," William Davidson Institute Working Papers Series 484, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  7. Enrico Saltari & Riccardo Tilli, 2004. "Labor Market Performance and Flexibility: Which Comes First?," Topics in Macroeconomics, Berkeley Electronic Press, vol. 4(1), pages 1174-1174. [Downloadable!] (restricted)
  8. Saltari Enrico & Tilli Riccardo, 2006. "Do Labor Market Conditions Affect the Strictness of Employment Protection Legislation?," Departmental Working Papers 240, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  9. Alberto Alesina & Edward Glaeser & Bruce Sacerdote, 2001. "Why Doesn't The US Have a European-Style Welfare State?," Harvard Institute of Economic Research Working Papers 1933, Harvard - Institute of Economic Research. [Downloadable!]
  10. Ravi Balakrishnan, 2001. "The interaction of firing costs and on-the-job search: an application of a search theoretic model to the Spanish labour market," Banco de España Working Papers 0102, Banco de España. [Downloadable!]
  11. Olivier Blanchard, 2005. "European Unemployment: The Evolution of Facts and Ideas," NBER Working Papers 11750, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Addison, John T. & Teixeira, Paulino, 1999. "Is Portugal really so arteriosclerotic? : Results from a cross-country analysis of labor adjustment," ZEW Discussion Papers 99-30, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  13. Boeri, Tito & Nicoletti, Giuseppe & Scarpetta, Stefano, 2000. "Regulation And Labour Market Performance," CEPR Discussion Papers 2420, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. António Menezes & José Vieira, 2008. "Training, Job Upgrading, Job Creation and Job Destruction," Atlantic Economic Journal, International Atlantic Economic Society, vol. 36(3), pages 275-292, September. [Downloadable!] (restricted)
  15. MacIsaac, Donna & Rama, Martin, 2001. "Mandatory severance pay : its coverage and effects in Peru," Policy Research Working Paper Series 2626, The World Bank. [Downloadable!]
  16. Kai Christoffel & Tobias Linzert, 2005. "The Role of Real Wage Rigidity and Labor Market Frictions for Unemployment and Inflation Dynamics," IZA Discussion Papers 1896, Institute for the Study of Labor (IZA). [Downloadable!]
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  17. O Blanchard & A Landier, 2002. "The Perverse Effects of Partial Labour Market Reform: fixed--Term Contracts in France," Economic Journal, Royal Economic Society, vol. 112(480), pages F214-F244, June. [Downloadable!] (restricted)
  18. Addison, John T. & Portugal, Pedro, 1998. "Job Search Methods and Outcomes," ZEW Discussion Papers 98-41, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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