Is Unemployment on Steroids in Advanced Economies?
IMF Working Papers, July 24, 2018
Source details
- Canonical URL
- Is Unemployment on Steroids in Advanced Economies?
Other formats
Bibliographic details
- Authors: Gabriel Di Bella, Francesco Grigoli, Francisco Ramirez
- Published: July 24, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484367490.001
Key findings on unemployment dynamics
- Strong empirical evidence of unemployment hysteresis in advanced economies since the 1990s.
- Several European economies display highly persistent unemployment dynamics that contradict the conventional view that demand shocks have only temporary effects.
- Under hysteresis, demand disturbances can have permanent effects on unemployment.
Methodology and identification
- Rely on an identification scheme instigated by an insider/outsider model.
- Study effects of demand shocks while allowing for cross-country heterogeneous dynamics.
- Exploit cross-country heterogeneity to investigate which institutional settings soften or amplify effects of demand shocks.
- Keywords and methods explicitly noted: panel VAR, unit root, Phillips curve, persistence, shocks to the variance, push factor, unemployment response.
Institutional determinants and mechanisms
- Institutional settings that influence the persistence of unemployment include:
- Speed of real wage adjustment.
- Disincentives for firms to hire and for workers to be employed.
- Efficiency of matching between labor supply and labor demand.
- Slower real wage adjustment, stronger hiring disincentives, and poor matching amplify adverse effects of demand shocks and prolong elevated unemployment.
Policy recommendations
- Strengthen labor market institutions that promote a faster adjustment of real wages.
- Remove disincentives for firms to hire and for workers to be employed.
- Improve matching between labor supply and labor demand to lessen effects of adverse demand shocks.
- Such reforms can lead to a faster reversion of unemployment rates to pre-shock levels.
Publication and metadata
- Title: Is Unemployment on Steroids in Advanced Economies?
- Authors: Gabriel Di Bella, Francesco Grigoli, Francisco Ramirez
- Publication date: July 24, 2018
- Series: IMF Working Papers
- Working Paper No.: 2018/169
- Issue: 169
- Pages: 33
- DOI: https://doi.org/10.5089/9781484367490.001
- ISBN: 9781484367490
- ISSN: 1018-5941
- Subjects: Employment, Labor, Labor supply, Labor taxes, Unemployment, Unemployment rate, Wages
- Keywords: Advanced economies, aggregate demand, aggregate demand demand shock, confidence interval, Employment, Europe, Global, hysteresis, Labor supply, panel VAR, persistence, Phillips curve, push factor, replacement ratio, shocks to the variance, unemployment, unemployment dynamics, unemployment hysteresis, Unemployment rate, unemployment response, unit root, wage inflation, Wages, WP
Source: IMF Working Paper "Is Unemployment on Steroids in Advanced Economies?" (2018/169), July 24, 2018.
Content in this bundle
- Is Unemployment on Steroids in Advanced Economies?, WP/18/169, July 2018