Philip, Jung and Moritz, Kuhn (2011): The Era of the U.S.-Europe Labor Market Divide: What can we learn?
Download (464kB) | Preview
Comparing labor markets in the United States and Germany as Europe’s largest economy over the period from 1980−2004 uncovers three stylized differences: (1) Germany’s mean transition rates from unemployment to employment (UE) were lower by a factor of 5 and transition rates from employment to unemployment (EU) were lower by a factor of 4. (2) The volatility of the UE rate was equal in both countries, but the EU rate was 2.3 times more volatile in Germany. (3) In Germany EU flows contributed 60−70% to unemployment volatility, whereas in the U.S. they contributed only 30−40%. Using a search and matching model we show theoretically that the joint analysis of first and second moments offers general identification restrictions on the underlying causes for these differences. We find that a lower efficiency in the matching process can consistently explain the facts while alternative explanations such as employment protection, the benefit system, union power, or rigid earnings can not. We document that a lower matching efficiency due to lower occupational and regional mobility in Germany finds strong support in the data. Finally, we show that the highlighted matching friction leads in the model calibrated to the German economy to a substantial amplification and propagation of shocks.
|Item Type:||MPRA Paper|
|Original Title:||The Era of the U.S.-Europe Labor Market Divide: What can we learn?|
|Keywords:||Business Cycle Fluctuations; Labor Market Institutions; Unemployment; Endogenous Firing|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity
|Depositing User:||Moritz Kuhn|
|Date Deposited:||19. Jul 2011 12:52|
|Last Modified:||19. Feb 2013 07:49|
Joseph G. Altonji and Nicolas Williams. Do wages rise with job seniority? a reassessment. Industrial & Labor Relations Review, 58(3), 2005.
Ronald Bachmann. Labour market dynamics in germany: Hirings, separations, and job-to-job transitions over the business cycle. Humboldt University: SFB Discussion Paper 2005-45, 2005.
Regis Barnichon and Andrew Figura. What drives matching efficiency? a tale of composition and dispersion. Finance and economics discussion series, Federal Reserve Board, 2011.
Samuel Bentolila, Pierre Cahuc, Juan J. Dolado, and Thomas Le Barbanchon. Unemployment and temporary jobs in the crisis: Comparing france and spain. working paper, 2010.
Olivier Blanchard and Jordi Gali. Labor markets and monetary policy: A new keynesian model with unemployment. working paper, 2008(1), 2010.
Olivier Blanchard and Pedro Portugal. What hides behind an unemployment rate: Comparing portuguese and u.s. labor markets. American Economic Review, 91(1):187–207, 2001.
Michael Burda and Charles Wyplosz. Gross worker and job flows in europe. European Economic Review, 38(6):1287–1315, 1994.
Michael C. Burda and Antje Mertens. Wages and worker displacement in germany. Labour Economics, 8:15–41, 2001.
Simon Burgess and Dan Mawson. Aggregate growth and the efficiency of labour reallocation. CEP Discussion Papers dp0580, Centre for Economic Performance, LSE, August 2003.
James Costain and Michael Reiter. Business cycles, unemployment insurance, and the calibration of matching models. Journal of Economic Dynamics and Control, 32(4):1120 – 1155, 2008.
James Costain, Juan Jimeno, and Carlos Thomas. Employment fluctuations in dual labor markets. Working Paper, Baco de Espana, 1013, 2010.
Ulrich Cramer. Probleme bei der besetzung von offenen stellen. Mitteilungen aus der Arbeitsmarkt und Berufsforschung 2, 1990.
Steven J. Davis, Jason R. Faberman, and John C. Haltiwanger. The establishment-level behavior of vacancies and hiring. Federal Reserve Bank of Philadelphia Working Paper, 2009.
Wouter den Haan, Garey Ramey, and Joel Watson. Job destruction and propagation of shocks. American Economic Review, 90:482–498, 2000.
Thomas A. Diprete, Paul M. De Graaf, Ruud Luijkx, Michael Tahlin, and Hans-Peter Blossfeld. Collectivist versus individualist mobility regimes? structural change and job mobility in four countries. American Journal of Sociology, 103(2):pp. 318–58, 1997.
Christian Dustmann and Costas Meghir. Wages, experience and seniority. Review of Economic Studies, 72(1):77–108, 2005. M. Elsby and Ryan Michaels. Marginal jobs, heterogeneous firms, and unemployment flows. working paper, 2010.
Michael Elsby, Ryan Michaels, and Gary Solon. The ins and outs of cyclical unemployment. American Economic Journal: Macroeconomics, 1(1):84–100, 2009.
Michael Elsby, Bart Hobijn, and Aysegül Sahin. The labor market in the great recession. Brookings Panel on Economic Activity, Spring 2010a.
Michael Elsby, Bart Hobijn, and Aysegul Sahin. Unemployment dynamics in the oecd. NBER working paper 14617, 2010b.
Bruce Fallick and Charles A. Fleischman. Employer to-employer flows in the u.s. labor market: The complete picture of gross worker flows. Finance and Economics Discussion Series 2004-34, Board of Governors of the Federal Reserve System (U.S.), 2004.
B. Fitzenberger, A. Osikominu, and R.Voelter. Imputation rules to improve the education variable in the iab employment subsample. Schmollers Jahrbuch, 126(3):405–436, 2006.
Wolfgang Franz. Arbeitsmarktökonomik. Springer, 7 edition, 2009.
Shigeru Fujita. Separation rate, earnings losses, and turbulence. Federal Reserve Bank of Philadelphia, mimeo, 2008.
Shigeru Fujita and Garey Ramey. The cyclicality of separation and job finding rates. International Economic Review, 50(2):415–430, 2009.
Markus Gangl. Labor market structure and re-employment rates: Unemployment dynamics in west germany and the united states. Research in Social Stratification and Mobility, 20:185–224, 2004.
Hermann Gartner, Christian Merkl, and Thomas Rothe. They are even larger! more (on) puzzling labor market volatilities. working paper, 2010.
Dominique M. Gross. Equilibrium vacancy and unemployment: A flow approach to the beveridge curve. Journal of Macroeconomics, 15(2):301 – 327, 1993.
Christian Haefke, Markus Sonntag, and Thijs van Rens. Wage rigidity and job creation. working paper, 2007.
Marcus Hagedorn and Iourii Manovskii. The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review, 98(4):1692–1706, 2008.
Robert E. Hall. Employment fluctuations with equilibrium wage stickiness. American Economic Review, 95(1):50–65, 2005.
Robert E. Hall and Paul R. Milgrom. The limited influence of unemployment on the wage bargain. American Economic Review, 98(4):1653–1674, 2008.
Ursula Hecker. Berufliche mobilität und wechselprozesse. In Wandel der Erwerbsarbeit: Arbeitssituation, Informatisierung, berufliche Mobilität und Weiterbildung. BeitrAB 231., pages 67–98, 2000.
Arthur Hosios. On the efficiency of matching and related models of search and unemployment. Review of Economic Studies, 57(2):279–298, 1990.
Gueorgui Kambourov and Iourii Manovskii. Rising occupational and industry mobility in the united states: 1968 - 97. International Economic Review, 49(1):41–79, 2008.
Gueorgui Kambourov and Iourii Manovskii. Occupational mobility and wage inequality. Review of Economic Studies, 76(2):731–759, 04 2009.
Narayana Kocherlakota. Inside the fomc. Speech, marquette, michigan, August 17 2010.
Karen Kopecky and Richard Suen. Finite state markov-chain approximations to highly persistent processes. Review of Economic Dynamics, 13(3):701–714, July 2010.
Lars Ljungqvist and Thomas Sargent. Two questions about european unemployment. Econometrica, 76(1):129–149, 2008.
Guido Menzio and Shouyong Shi. Efficient search on the job. working paper, 2009.
Raven Molloy, Christopher L. Smith, and Abigail Wozniak. Internal migration in the united states. Journal of Economic Perspectives, 25(2):1–42, Spring 2011.
Giuseppe Moscarini and Kaj Thomsson. Occupational and job mobility in the us*. Scandinavian Journal of Economics, 109(4):807–836, 2007.
Barbara Petrongolo and Christopher A. Pissarides. Looking into the black box: A survey of the matching function. Journal of Economic Literature, 2001(2):390–431, 2001.
Barbara Petrongolo and Christopher A. Pissarides. The ins and outs of european unemployment. American Economic Review, 98(2):256–262, 2008.
Christopher Pissarides. The unemployment volatility puzzle: Is wage stickiness the answer? Econometrica, 77(5):1339–1369, 2009.
Leena Rudanko. Labor market dynamics under long-term wage contracting. Journal of Monetary Economics, 56(2), 2009.
Aysegül Sahin, Joseph Song, Giorgio Topa, and Giovanni Violante. Measuring mismatch in the u.s. labor market. Working paper, March 2011.
Ronald Schettkat. Mismatch in the west german labour market? economic restructuring and unemployment in the 1980s. LABOUR, 6(1):121–140, 1992.
Fiorella Padoa Schioppa. Mismatch and Labour Mobility. Cambridge University Press, Cambridge and New York. Cambridge University Press, March 1991.
Robert Shimer. The cyclical behavior of equilibrium unemployment, vacancies, and wages: Evidence and theory. American Economic Review, 95(1):25–49, 2005.
Robert Shimer. Reassessing the ins and outs of unemployment. 2007. Mimeo, University of Chicago.
David Soskice. Reconciling markets and institutions: The german apprenticeship system. In Training and the Private Sector, pages 25–60, 1994.
Etienne Wasmer. Interpreting europe-us labor market differences: the specificity of human capital investments. American Economic Review, 96(3):811–831, 2006.
Available Versions of this Item
- The Era of the U.S.-Europe Labor Market Divide: What can we learn? (deposited 19. Jul 2011 12:52) [Currently Displayed]