Unemployment in the European Union: Institutions, Prices, and Growth

33 Pages Posted: 9 Sep 2003

See all articles by Marika Karanassou

Marika Karanassou

University of London, Queen Mary - Department of Economics; Institute for the Study of Labor (IZA)

Hector Sala

Autonomous University of Barcelona - Department of Applied Economics; IZA Institute of Labor Economics

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 2004

Abstract

This paper presents a reappraisal of unemployment movements in the European Union. Our analysis is based on the chain reaction theory of unemployment, which focuses on (a) the interaction among labor market adjustment processes, (b) the interplay between these adjustment processes and the dynamic structure of labor market shocks, and (c) the interaction between the adjustment processes and economic growth. We divide the shocks into institutional variables, price variables, and growth drivers. Estimating a system of labor market equations for a panel of EU countries, we derive the dynamic unemployment responses to each shock. Our analysis permits us to distinguish between the short- and long-run effects of the shocks. Different shocks generate different degrees of "unemployment persistence" (responses to temporary shocks) and "unemployment responsiveness" (responses to permanent shocks). We find that the growth drivers play a dominant role in accounting for the main swings in EU unemployment.

Keywords: unemployment, natural rate, labor market shocks, chain reaction theory, employment, labor force participation, wage determination, dynamic contributions, homogeneous dynamic panels, panel unit root tests

JEL Classification: E30, E37, J32, J60, J64

Suggested Citation

Karanassou, Marika and Sala Lorda, Hector and Snower, Dennis J., Unemployment in the European Union: Institutions, Prices, and Growth (July 2004). Available at SSRN: https://ssrn.com/abstract=419100 or http://dx.doi.org/10.2139/ssrn.419100

Marika Karanassou (Contact Author)

University of London, Queen Mary - Department of Economics ( email )

Mile End Road
London, E1 4NS
United Kingdom
+44 20 7975 5090 (Phone)
+44 20 7983 3580 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Hector Sala Lorda

Autonomous University of Barcelona - Department of Applied Economics ( email )

Departament d'Economia Aplicada
Bellaterra, 08193
Spain
+34 93 581 2779 (Phone)
+34 93 581 2292 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW) ( email )

Duesternbrooker Weg 120
D-24118 Kiel
Germany
+49+431-8814-235 (Phone)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
293
Abstract Views
2,073
rank
124,804
PlumX Metrics