Is unemployment on steroids in advanced economies?
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Gabriel Di Bella
und
Francisco Ramírez
Abstract
Conventional macroeconomic theory is based on the idea that demand shocks can only have temporary effects on unemployment, however several European economies display highly persistent unemployment dynamics. The theory of hysteresis points out that, under certain conditions, demand disturbances can have permanent effects. We find strong evidence of unemployment hysteresis in advanced economies since the 1990s. Relying on an identification scheme instigated by an insider/outsider model, we exploit the heterogeneity in impulse responses to demand shocks to investigate what labor institutions soften or amplify these responses. Our results indicate that strengthening labor institutions that promote a faster adjustment of real wages, removing disincentives for firms to hire and for workers to be employed, and improving the matching between labor supply and demand can lessen the effects of adverse demand shocks and lead to a faster reversion of unemployment rates to pre-shock levels.
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Author Note
The views expressed in this paper are those of the authors and do not necessarily represent those of the IMF or IMF policy. We thank, without implicating, Valerie Cerra, Bertrand Gruss, Alvar Kangur, Lin Li, Malhar Nabar, Maury Obstfeld, Jiri Podpiera, Gonzalo Varela, and the participants to the 21st Dynamic Econometrics Conference at George Washington University for their comments and suggestions.
©2020 Walter de Gruyter GmbH, Berlin/Boston
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Artikel in diesem Heft
- Contributions
- An empirical study on the New Keynesian wage Phillips curve: Japan and the US
- Risk averse banks and excess reserve fluctuations
- Advances
- Signaling in monetary policy near the zero lower bound
- Contributions
- Robust learning in the foreign exchange market
- Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
- Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
- Agency costs and the monetary transmission mechanism
- Advances
- Optimal monetary policy in a model of vertical production and trade with reference currency
- The financial accelerator and marketable debt: the prolongation channel
- The welfare cost of inflation with banking time
- Prospect Theory and sentiment-driven fluctuations
- Contributions
- Household borrowing constraints and monetary policy in emerging economies
- The macroeconomic impact of shocks to bank capital buffers in the Euro Area
- The effects of monetary policy on input inventories
- The welfare effects of infrastructure investment in a heterogeneous agents economy
- Advances
- Collateral and development
- Contributions
- Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
- Is unemployment on steroids in advanced economies?
- Monitoring and coordination for essentiality of money
- Dynamics of female labor force participation and welfare with multiple social reference groups
- Advances
- Technology and the two margins of labor adjustment: a New Keynesian perspective
- Contributions
- Changing demand for general skills, technological uncertainty, and economic growth
- Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
- Fiscal policy and the output costs of sovereign default
- Animal spirits in an open economy: an interaction-based approach to the business cycle
- Ramsey income taxation in a small open economy with trade in capital goods
