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Characteristics of Unemployment Dynamics: The Chain Reaction Approach

Author

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  • Karanassou, Marika

    (Queen Mary, University of London)

  • Snower, Dennis J.

    (Hertie School of Governance)

Abstract

The aim of this paper is to analyze and estimate salient characteristics of unemployment dynamics. Movements in unemployment are viewed as ‘ ‘ chain reactions’’ of responses to labor market shocks, working their way through systems of interacting lagged adjustment processes. In the context of estimated labor market systems for Germany, the UK, and the US, we construct aggregate measures of unemployment responses to temporary and permanent shocks. These measures are temporal (depicting how long it takes for unemployment to reach long-run equilibrium) and quantitative (depicting the cumulative amount of unused labor resources generated in the aftermath of a shock). Furthermore, we estimate the contributions of individual lagged adjustments to these aggregate measures. Our empirical results indicate that (i) lagged adjustment processes play an important part in explaining how temporary and permanent shocks affect unemployment, (ii) temporary and permanent shocks can yield quite different inter-country comparisons of unemployment effects, and (iii) the quantitative and temporal measures can also yield markedly different inter-country comparisons. This analysis provides insights into the driving forces underlying the movements of unemployment in the countries above.

Suggested Citation

  • Karanassou, Marika & Snower, Dennis J., 2000. "Characteristics of Unemployment Dynamics: The Chain Reaction Approach," IZA Discussion Papers 127, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp127
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    References listed on IDEAS

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    1. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-113, May.
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    7. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
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    9. Lindbeck, Assar & Snower, Dennis J, 1987. "Strike and Lock-Out Threats and Fiscal Policy," Oxford Economic Papers, Oxford University Press, vol. 39(4), pages 760-784, December.
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    11. Lindbeck, Assar & Snower, Dennis J., 1987. "Union activity, unemployment persistence and wage-employment ratchets," European Economic Review, Elsevier, vol. 31(1-2), pages 157-167.
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    13. Lindbeck, Assar & Snower, Dennis J, 1990. "Cooperation, Harassment, and Involuntary Unemployment: Reply," American Economic Review, American Economic Association, vol. 80(3), pages 631-636, June.
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    Citations

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    Cited by:

    1. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980–1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, March.
    2. Xavier Raurich & Hector Sala & Valeri Sorolla, 2009. "Labour market effects of public capital stock: evidence for the Spanish private sector," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(1), pages 1-18.
    3. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    4. Roberto Bande, 2002. "Ajustes Dinámicos en las Tasas de Paro: España vs. Portugal," Documentos de trabajo - Analise Economica 0020, IDEGA - Instituto Universitario de Estudios e Desenvolvemento de Galicia.
    5. Roberto Bande & Marika Karanassou, 2014. "Spanish Regional Unemployment Revisited: The Role of Capital Accumulation," Regional Studies, Taylor & Francis Journals, vol. 48(11), pages 1863-1883, November.
    6. Xavier Raurich & Hector Sala & Valeri Sorolla, "undated". "Employment and public capital in Spain," Working Papers 2001-21, FEDEA.
    7. M. Sylvina Porras-Arena & Mauricio A. Suárez Cal, 2021. "What’s behind Okun’s law? A multiple equation approach to the Uruguayan labour market," Documentos de Trabajo (working papers) 21-30, Instituto de Economía - IECON.
    8. Snower, Dennis & Karanassou, Marika & Sala, Hector, 2004. "Unemployment in the EU: Institutions, Prices and Growth," CEPR Discussion Papers 4243, C.E.P.R. Discussion Papers.
    9. Marika Karanassou & Hector Sala & Dennis J. Snower, 2003. "Unemployment in the European Union: Institutions, Prices, and Growth," Working Papers 493, Queen Mary University of London, School of Economics and Finance.
    10. Roberto Bande & Marika Karanassou, 2009. "Labour market flexibility and regional unemployment rate dynamics: Spain 1980–1995," Papers in Regional Science, Wiley Blackwell, vol. 88(1), pages 181-207, March.

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    More about this item

    Keywords

    Unemployment; natural rate hypothesis; labor markets; employment; adjustment costs;
    All these keywords.

    JEL classification:

    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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