Abstract
To understand European and American unemployment during the last 60 years, we use a search-island model and four matching models with workers who have heterogeneous skills and entitlements to government benefits. When there is higher turbulence, in the sense of worse skill transition probabilities for workers who suffer involuntary layoffs, high government mandated unemployment insurance (UI) and employment protection (EP) in Europe increase unemployment rates and durations. But when there is lower turbulence, high European EP suppresses unemployment rates despite high European UI. Four matching models differ in how they assign unemployed workers to matching functions. That affects how strongly unemployment responds to increases in turbulence. Heterogeneity among unemployed workers highlights the central role of adverse labor market externalities in matching models and reveals that the cost of posting vacancies is the lynchpin of a matching model.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 2139-2179 |
| Number of pages | 41 |
| Journal | Journal of Monetary Economics |
| Volume | 54 |
| Issue number | 8 |
| DOIs | |
| State | Published - Nov 2007 |
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Keywords
- Employment protection
- Matching
- Search
- Turbulence
- Unemployment insurance
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
Understanding European unemployment with matching and search-island models. / Ljungqvist, Lars; Sargent, Thomas.
In: Journal of Monetary Economics, Vol. 54, No. 8, 11.2007, p. 2139-2179.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Understanding European unemployment with matching and search-island models
AU - Ljungqvist, Lars
AU - Sargent, Thomas
PY - 2007/11
Y1 - 2007/11
N2 - To understand European and American unemployment during the last 60 years, we use a search-island model and four matching models with workers who have heterogeneous skills and entitlements to government benefits. When there is higher turbulence, in the sense of worse skill transition probabilities for workers who suffer involuntary layoffs, high government mandated unemployment insurance (UI) and employment protection (EP) in Europe increase unemployment rates and durations. But when there is lower turbulence, high European EP suppresses unemployment rates despite high European UI. Four matching models differ in how they assign unemployed workers to matching functions. That affects how strongly unemployment responds to increases in turbulence. Heterogeneity among unemployed workers highlights the central role of adverse labor market externalities in matching models and reveals that the cost of posting vacancies is the lynchpin of a matching model.
AB - To understand European and American unemployment during the last 60 years, we use a search-island model and four matching models with workers who have heterogeneous skills and entitlements to government benefits. When there is higher turbulence, in the sense of worse skill transition probabilities for workers who suffer involuntary layoffs, high government mandated unemployment insurance (UI) and employment protection (EP) in Europe increase unemployment rates and durations. But when there is lower turbulence, high European EP suppresses unemployment rates despite high European UI. Four matching models differ in how they assign unemployed workers to matching functions. That affects how strongly unemployment responds to increases in turbulence. Heterogeneity among unemployed workers highlights the central role of adverse labor market externalities in matching models and reveals that the cost of posting vacancies is the lynchpin of a matching model.
KW - Employment protection
KW - Matching
KW - Search
KW - Turbulence
KW - Unemployment insurance
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U2 - 10.1016/j.jmoneco.2007.09.001
DO - 10.1016/j.jmoneco.2007.09.001
M3 - Article
VL - 54
SP - 2139
EP - 2179
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
SN - 0304-3932
IS - 8
ER -