NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Christian Haefke

New York University Abu Dhabi
Division of Social Sciences
Saadiyat Island
Abu Dhabi
United Arab Emirates
PO Box: 129188
Tel: +971 56 3103193

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NBER Working Papers and Publications

September 2001Shocks and Institutions in a Job Matching Model
with Wouter Den Haan, Garey Ramey: w8463
This paper explains the divergent behavior of European and US unemployment rates using a job market matching model of the labor market with an interaction between shocks and institutions. It shows that a reduction in TFP growth rates, an increase in real interest rates, and an increase in tax rates leads to a permanent increase in unemployment rates when the replacement rates or initial tax rates are high, while no increase in unemployment occurs when institutions are 'employment friendly.' The paper also shows that an increase in turbulence, modeled as an increased probability of skill loss, is not a robust explanation for the European unemployment puzzle in the context of a matching model with both endogenous job creation and job destruction.
 
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