What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment

51 Pages Posted: 20 Nov 1998 Last revised: 10 Oct 2010

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

Date Written: July 1998

Abstract

Over the last 15 years, Portugal and the United States have had the same average unemployment rate, about 6.5%. But behind these similar rates hide two very different labor markets. Unemployment duration in Portugal is more than three times that of the United States. Symmetrically, the flow of workers into unemployment in Portugal is, in proportion to the labor force, less than a third of what it is in the United States. Relying on evidence from Portuguese and U.S. micro data sets, we show that these lower flows come in roughly equal proportions from lower job flows, and from lower worker flows relative to job flows. We then argue that these differences plausibly come from high employment protection in Portugal. We finally show how, looking across countries, higher employment protection is associated with lower flows and higher unemployment duration. In short, high employment protection makes economics more sclerotic; but because it affects unemployment duration and flows in opposite directions, it has an ambiguous effect on the unemployment rate.

Suggested Citation

Blanchard, Olivier J. and Portugal, Pedro, What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment (July 1998). NBER Working Paper No. w6636. Available at SSRN: https://ssrn.com/abstract=123178

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Pedro Portugal

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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