Labour market institutions and aggregate fluctuations in a search and matching model

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 09 October 2007

Working Paper No. 333
By Francesco Zanetti

This paper explores the influence of some key institutional features of the labour market on aggregate fluctuations. It uses a dynamic, stochastic, general equilibrium model characterised by search and matching frictions in the labour market and nominal rigidities in the goods market. It finds that firing costs and unemployment benefits can have substantial effects on aggregate fluctuations. Increasing firing costs decreases the volatility of output, employment and job flows, due to the reduction of the mass of jobs sensitive to disturbances and lower incentives for firms to hire and fire workers. Hence, firms adjust to shocks mainly through prices, and inflation then becomes more volatile. Raising unemployment benefits has the reverse effect on aggregate fluctuations.

PDF Labour market institutions and aggregate fluctuations in a search and matching model 

 

Other papers

Give your feedback

Was this page useful?
Yes
No
Add your details...