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What goes up sometimes stays up: shocks and institutions as determinants of unemployment persistence

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Abstract

We analyse the determinants of unemployment persistence in four OECD countries by estimating a structural Bayesian VAR with an informative prior based on an insiders/outsiders model. We explicitly insert unemployment benefits and labour taxes so that our identification is not affected by the Faust and Leeper (1997) critique. We find widespread hysteresis: demand shocks play a dominant role in explaining unemployment also in the medium-run. Moreover real wages have low sensitivity to cyclical fluctuations and to labour market disequilibria. Our results emphasise the real power of the unions and their interactions with structural shocks and other institutions as crucial determinants of hysteresis.

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  • Gianni Amisano & Massimiliano Serati, 2002. "What goes up sometimes stays up: shocks and institutions as determinants of unemployment persistence," LIUC Papers in Economics 111, Cattaneo University (LIUC).
    • Handle: RePEc:liu:liucec:111
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    5. Bella Gabriel Di & Grigoli Francesco & Ramírez Francisco, 2020. "Is unemployment on steroids in advanced economies?," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-17, January.
    6. Holmlund, Bertil & Alexius, Annika, 2008. "Monetary Policy and Swedish Unemployment Fluctuations," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-25.
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    13. BATTISTI,Michele, 2006. "Assessing persistence in the Italian rate of unemployment in presence of structural breaks and regional asymmetries, 1977 to 2004," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 6(3).
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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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