This paper indicates that East Germany’s unemployment originates primarily in the labor market, caused by the fast wage adjustment after German reunification. We model the resulting labor market traps in a search and matching framework, show that they are difficult to overcome, and provide empirical evidence. We argue that under these circumstances, demand-side policies are effective mainly whe...

It has long been argued (Blanchard et al., 1992; Blanchard and Katz, 1997) that shifts in local labor market conditions, geographic variation in labor force demographics (labor supply), and sectoral shifts in industrial patterns (labor demand) might influence the natural rate of unemployment. On the supply side of the labor market this could occur through divergent trends in differential attach...

The paper extends Lucas and Prescott’s (1974) search model to develop a notion of rest unemployment. The economy consists of a continuum of labor markets, each of which produces a heterogeneous good. There is a constant returns to scale production technology in each labor market, but labor productivity is continually hit by idiosyncratic shocks, inducing the costly reallocation of workers acros...

Income Support Systems, Labor Market Policies and Labor Supply: The German Experience In view of the demographic trends, most EU countries face the problem of a declining work force in the future. Understanding the interaction between income support systems (such as unemployment benefits, social assistance, early retirement and pension systems) and total labor supply is of crucial importance to...

This paper examines whether conclusions about the relationship between education and labor market risk depend on the use of commonly applied procedures to clean data of extreme values. The analysis uses fifteen years of data from the Panel Study of Income Dynamics to demonstrate that conclusions about the relationship between education and labor market risk are sensitive to how extreme values o...

In this paper, I examine how time-varying discount factors can contribute to labor market volatility in a Diamond-Mortensen-Pissarides matching model. I find that the procyclical discount factor of either entrepreneurs or workers can magnify labor market volatility. Quantitatively, the entrepreneur’s discount factor has a larger effect than the worker’s discount factor. To account for the obser...

We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment, unemployment, and non-participation. We use it to study the implications of two kinds of aggregate shocks for the...

We integrate local labor market data on worker flows (accession and separation rates), job flows (creation and destruction rates), employment levels, and earnings with MSA-level data on housing prices and local area unemployment, in order to study the local labor market dynamics associated with the U.S. housing price bubble of the late 2000s. We proceed to study the magnitude and timing of the ...

This paper documents recent advances of research on labor market institutions, behavior, and policies in developing countries and makes suggestions for future research. The four areas of research analyzed are: i) theoretical and empirical implications of employment protection legislation on labor outcomes; ii) the issue of shifting from job to worker protection, namely, the different alternativ...