Macroeconomic policy lessons of labor market frictions

Research output: Contribution to journalArticlepeer-review

Abstract

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in over-riding frictions, as well as how it might generate adverse outcomes. A partial-equilibrium, empirically grounded model is used to simulate policy effects. The key results are that policy has effects on the stochastic behavior of key variables - measures that reduce unemployment also reduce its persistence and increase the volatility of vacancies. Hiring subsidies and unemployment benefits have substantial effects on labor market outcomes, while employment subsidies or wage tax reductions are not very effective policy instruments.

Original languageEnglish
Pages (from-to)259-284
Number of pages26
JournalEuropean Economic Review
Volume48
Issue number2
DOIs
StatePublished - Apr 2004

Keywords

  • Beveridge curve
  • Business cycles
  • Labor market frictions
  • Macroeconomic policy
  • The natural rate of unemployment

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