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Hysteresis and labour market institutions. Evidence from the UK and the Netherlands

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  • Antonio Rodriguez-Gil

    (University of Leeds)

Abstract

This paper uses data for the UK and the Netherlands (1983q4–2011q4) to test if hysteresis occurs in these economies, and through what mechanisms. The novelty of the paper resides in the use of a VAR-IRF that encompasses previous hysteresis studies, using long-term unemployment, productivity, capital stock and real long-term interest rates, and in the use of specific Labour Market Institutions shocks, such as benefits, taxation or unions’ power. This allows us to disentangle what specific demand and supply-variables affect unemployment in the long-run, i.e. the NAIRU. Our findings suggest that there is hysteresis in both countries, and that it happens through several channels. Further, we find that the influence of Labour Market Institutions on unemployment depend on their impact on the real wages-productivity gap. These results have implications for structural and macroeconomic policies that we also discuss. Finally, we investigate the impact of different supply and demand-shock on long-term unemployment and discuss the relevant policy implications.

Suggested Citation

  • Antonio Rodriguez-Gil, 2018. "Hysteresis and labour market institutions. Evidence from the UK and the Netherlands," Empirical Economics, Springer, vol. 55(4), pages 1985-2025, December.
    • Handle: RePEc:spr:empeco:v:55:y:2018:i:4:d:10.1007_s00181-017-1338-y
    DOI: 10.1007/s00181-017-1338-y
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    2. Paternesi Meloni, Walter & Romaniello, Davide & Stirati, Antonella, 2022. "Inflation and the NAIRU: assessing the role of long-term unemployment as a cause of hysteresis," Economic Modelling, Elsevier, vol. 113(C).
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    More about this item

    Keywords

    Hysteresis; NAIRU; Labour Market Institutions; Impulse response analysis;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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