Unemployment in the great recession

This paper studies the responses of unemployment in Germany, the United States and Britain to the Great Recession of 2008-09 by making use of Beveridge curve analysis, and in the entire OECD with other techniques. It is shown that Britain suffered from recession but no structural problems; the United States suffered from structural unemployment during the recovery; Germany exhibited a much better performance both during and after the recession. The rise in OECD unemployment is broken down into parts due to aggregate activity, the construction sector and a residual attributed to policies and institutions, which is used to reach conclusions about policy

Autobiography

I was born in Nicosia, Cyprus, on 20 February 1948. My father Antonios was born in the village of Agros, in the Troodos mountains, a village in a valley surrounded by mountains on three sides and with an opening to the south overlooking in the distance the bay of Limassol. He was one of seven children, and at the age of ten he was taken out of school and sent to Nicosia to work as a shop assistant for his uncle. He lived and worked with his uncle’s family until his twenties, when he was able to open his own shop, selling materials for making clothes and other items for the home. His business flourished when we were growing up but late in his life economic development and cheap imports made his trade obsolete.Search frictions;

Equilibrium in the Labour Market with Search Frictions

Christopher A. Pissarides delivered his Prize Lecture on 8 December 2010 at Aula Magna, Stockholm University.Search frictions;

The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?

I study the cyclical behavior of an equilibrium search model with endogenous job creation and destruction, with focus on the model's failure to match the observed cyclical volatility of unemployment. Job creation in the model is influenced by wages in new matches. I summarize microeconometric evidence on wages in new matches and show that the key model elasticities are consistent with the evidence. Therefore explanations of the unemployment volatility puzzle have to preserve the cyclical volatility of wages. I discuss some extensions of the model that can increase cyclical unemployment volatility through mechanisms other than wage stickiness.wages, unemployment, wage stickiness, job creation

Company Start-Up Costs and Employment

I study the role of company start-up costs for employment performance. The model is search equilibrium with a new concept for firms. Agents have an innate managerial ability and make a career choice to become either managers or workers. Managers set up firms, post jobs and match with workers. Managers set up firms, post jobs and match with workers. I show that in equilibrium, career choice and job creation are jointly determined. Higher start-up costs reduce overall employment but increase the size of incumbent firms. I discuss some cross-country OECD evidence which supports the model's main proposition.Start-up costs, regulation, employment, OECD unemployment, search and matching.

Unemployment in Britain: A European Success Story

Unemployment in the United Kingdom has fallen from high European-style levels to US levels. I argue that the key reasons are the reform of monetary policy, in 1993 with the adoption of inflation targeting and in 1997 with the establishment of the independent Monetary Policy Committee, and second the decline of trade union power. I interpret the reform of monetary policy as an institutional change that reduced inflationary pressures in the face of falling unemployment. The decline of trade union power contributed to the control of wage inflation. The major continental economies failed to match UK performance because of institutional rigidities, despite low inflation expectations.

Looking Into the Black Box: A Survey of the Matching Function

We survey the microfoundations, empirical evidence and estimation issues underlying the aggregate matching function. Several microeconomic matching mechanisms have been suggested in the literature with some successes but none is generally accepted as superior to all others. Instead, an aggregate matching function with hires as a function of vacancies and unemployment has been successfully estimated for several countries. The Cobb-Douglas restrictions with constant returns to scale perform well. Recent work has utilized disaggregated data to go beyond aggregate estimates, with many refinements and suggestions for future research.Matching function, search, mismatch, Beveridge curve, co-ordination failure, stock-flow matching, ranking, on-the-job search, space aggregation, time aggregation

Scale Effects in Markets with Search

Reduced-form tests of scale effects in markets with search, run when aggregate matching functions are estimated, may miss important scale effects at the micro level, because of the reactions of job searchers. A semi-structural model is developed and estimated on a British sample, testing for scale effects on the offer arrival rate and the wage offer distribution. When contrasting London with the rest of the country we find scale effects in wage offers. But the larger market delivers higher realized wages and not more matches, because the scale effects on matches are offset by the response of reservation wages.Job search, economies of scale, matching, aggregate matching functions, wage offer distribution, unemployment

Productivity Growth and Employment: Theory and Panel Estimates

Theoretical predictions of the effect of TFP growth on employment are ambiguous, anddepend on the extent to which new technology is embodied in new jobs. We estimate amodel for employment, wages and investment with an annual panel for the United States,Japan and Europe and find that TFP growth increases employment. For the United StatesTFP growth explains the trend change in unemployment. We evaluate the model and findthat creative destruction plays no part in aggregate unemployment dynamics. The model canexplain up to half of the estimated impact of growth on unemployment.TFP growth, employment, creative destruction, capitalization effect,unemployment dynamics, embodied technology