Structural and Cyclical Forces in the Labor Market During the Great Recession: Cross-Country Evidence

Riksbank Research Paper Series No. 95

Sveriges Riksbank Working Paper Series No. 264

65 Pages Posted: 23 Nov 2012

See all articles by Luca Sala

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER)

Ulf Söderström

Central Bank of Sweden - Research Department

Antonella Trigari

Bocconi University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2012

Abstract

We use an estimated monetary business cycle model with search and matching frictions in the labor market and nominal price and wage rigidities to study four countries (the U.S., the U.K., Sweden, and Germany) during the financial crisis and the Great Recession. We estimate the model over the period prior to the financial crisis and use the model to interpret movements in GDP, unemployment, vacancies, and wages in the period from 2007 until 2011. We show that contractionary financial factors and reduced efficiency in labor market matching were largely responsible for the experience in the U.S. Financial factors were also important in the U.K., but less so in Sweden and Germany. Reduced matching efficiency was considerably less important in the U.K. and Sweden than in the U.S., but matching efficiency improved in Germany, helping to keep unemployment low. A counterfactual experiment suggests that unemployment in Germany would have been substantially higher if the German labor market had been more similar to that in the U.S.

Keywords: Business cycles, financial crisis, labor market matching, Beveridge curve

JEL Classification: E24, E32

Suggested Citation

Sala, Luca and Söderström, Ulf and Trigari, Antonella, Structural and Cyclical Forces in the Labor Market During the Great Recession: Cross-Country Evidence (October 1, 2012). Riksbank Research Paper Series No. 95. Available at SSRN: https://ssrn.com/abstract=2170396 or http://dx.doi.org/10.2139/ssrn.2170396

Luca Sala

University of Bocconi - Innocenzo Gasparini Institute for Economic Research (IGIER) ( email )

Via Roentgen 1
Milan, 20136
Italy
+39 02 5836 3326 (Phone)

Ulf Söderström (Contact Author)

Central Bank of Sweden - Research Department ( email )

Stockholm, 103 37
Sweden
+46 8 787 0829 (Phone)
+46 8 21 05 31 (Fax)

HOME PAGE: http://www.riksbank.se/research/soderstrom

Antonella Trigari

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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