Turbulence And Unemployment In A Job Matching Model
According to Ljungqvist and Sargent (1998), high European unemployment since the 1980s can be explained by a rise in economic turbulence, leading to greater numbers of unemployed workers with obsolete skills. These workers refuse newjobs due to high unemployment benefits. In this paper we reassess the turbulence-unemployment relationship using a matching model with endogenous job destruction. In our model, higher turbulence reduces the incentives of employed workers to leave their jobs. If turbulence has only a tiny effect on the skills of workers experiencing endogenous separation, then the results of Ljungqvist and Sargent (1998, 2004) are reversed, and higher turbulence leads to a reduction in unemployment. Thus, changes in turbulence cannot provide an explanation for European unemployment that reconciles the incentives of both unemployed and employed workers. (JEL: E24, J64) Copyright (c) 2005 by the European Economic Association.
Year of publication: |
2005
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Authors: | Haan, Wouter J. den ; Haefke, Christian ; Ramey, Garey |
Published in: |
Journal of the European Economic Association. - MIT Press. - Vol. 3.2005, 6, p. 1360-1385
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Publisher: |
MIT Press |
Saved in:
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