The Rise and Fall of Swiss Unemployment: Relative Demand Shocks, Wage Rigidities, and Temporary Immigrants
Patrick A. Puhani
Leibniz University Hannover; University of St. Gallen - Swiss Institute for International Economics and Applied Economic Research; Institute for the Study of Labor (IZA); Université Paris II - Panthéon-Assas
IZA Discussion Paper No. 684; University of St. Gallen, Department of Economics, Discussion Paper No. 2002-29
Switzerland, traditionally a "zero unemployment" economy, has seen an unprecedented rise in joblessness in the 1990s although unemployment fell again to a rather low level after 1997. This paper tests whether Switzerland experienced a negative relative net demand shock against the low skilled (like the US) during this period. It turns out that only workers with an educational level below apprenticeship were affected by such a shock. Furthermore, I test whether wages reacted flexibly to this shock and find that they were rigid, which can explain the relative unemployment increase for this group. Finally, I test whether the skill mix of temporary immigrants was adjusted to the relative demand shock. The evidence suggests that it was changed during the period around 1997 when unemployment peaked. By 2001, however, the educational mix of temporary immigrants was not significantly different from its 1991 level any more, although relative unemployment for the least skilled was still relatively high in face of the relative wage rigidity affecting this group.
Number of Pages in PDF File: 66
Keywords: Earnings, Non-employment, Rigidity, Identification, Foreigners, Work Permits
JEL Classification: E24, J21, J31, J64working papers series
Date posted: February 7, 2003
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