Unemployment in the European Union: A dynamic reappraisal

Marika Karanassou, Hector Sala, Dennis Snower

Research output: Contribution to journalArticleResearchpeer-review

16 Citations (Scopus)

Abstract

This paper examines the movements in EU unemployment from two perspectives: (a) the NRU/NAIRU perspective, in which unemployment movements are attributed largely to changes in the long-run equilibrium unemployment rate and (b) the chain-reaction perspective, in which unemployment movements are viewed as the outcome of the interplay between labor market shocks and prolonged lagged adjustment processes. We present an empirical analysis that distinguishes between unemployment movements arising from long-run equilibrium changes and those arising from lagged intertemporal adjustments. This analysis has farreaching policy implications. Our analysis shows that the rise in EU unemployment over the 1970s and first part of the 1980s was due largely to permanent shocks (especially the rise in working-age population and the decline in capital formation), whereas the unemployment increase in the first part of the 1990s was due largely to temporary shocks (especially the fall in competitiveness and the rise in real interest rates). © 2003 Published by Elsevier Science B.V.
Original languageEnglish
Pages (from-to)237-273
JournalEconomic Modelling
Volume20
DOIs
Publication statusPublished - 1 Jan 2003

Keywords

  • Employment
  • Homogeneous dynamic panels
  • Intertemporal adjustments
  • Labor force participation
  • Labor market shocks
  • NAIRU
  • Natural rate
  • Panel unit root tests
  • Unemployment
  • Wage determination

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