Turbulence and unemployment in a job matching model

Wouter J. den Haan, Christian Haefke, Garey Ramey

    Research output: Contribution to journalArticle

    Abstract

    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 new jobs duetohighunemployment 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.

    Original languageEnglish (US)
    Pages (from-to)1360-1385
    Number of pages26
    JournalJournal of the European Economic Association
    Volume3
    Issue number6
    DOIs
    StatePublished - Dec 1 2005

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    Unemployment
    Job matching
    Turbulence
    Matching model
    Workers
    European unemployment
    Incentives
    Job destruction
    Economics

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

    Cite this

    Turbulence and unemployment in a job matching model. / den Haan, Wouter J.; Haefke, Christian; Ramey, Garey.

    In: Journal of the European Economic Association, Vol. 3, No. 6, 01.12.2005, p. 1360-1385.

    Research output: Contribution to journalArticle

    den Haan, Wouter J. ; Haefke, Christian ; Ramey, Garey. / Turbulence and unemployment in a job matching model. In: Journal of the European Economic Association. 2005 ; Vol. 3, No. 6. pp. 1360-1385.
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