Job turnover, unemployment and labor market institutions

in Labour Economics (2004), 11(4), 451-468

This paper studies the role of labor market institutions on unemployment and on the cyclical properties of job flows. We construct an intertemporal general equilib- rium model with search unemployment and ... [more ▼]

This paper studies the role of labor market institutions on unemployment and on the cyclical properties of job flows. We construct an intertemporal general equilib- rium model with search unemployment and endogenous job turnover, and examine the consequences of introducing an unemployment benefit, a firing cost and a downward wage rigidity. The model is able to reproduce the main cyclical properties of a typical European economy. It also suggests that downward wage rigidities, rather than unem- ployment benefit or firing cost, may well play a dominant role in explaining both the high unemployment rate and the cyclical properties of such an economy. [less ▲]