Hysteresis and Labour Market Institutions: Evidence from the UK and the Netherlands
31 Pages Posted: 18 Dec 2015
Date Written: December 17, 2015
This paper uses data for the UK and the Netherlands (1983q4-2011q4) to test if hysteresis occurs in these economics, and through what mechanisms. The novelty of the paper resides in the use of a VAR-IRF that encompasses previous hysteresis studies and the use of specific Labour Market Institutions shocks. This allows us to disentangle what specific demand and supply-variables affect unemployment in the long-run. Further we also investigate the impact of different supply and demand-shock on long-term unemployment. Our findings suggest that there is hysteresis in both countries, and that it happens through different channels, namely, long-term unemployment, productivity, capital stock and real long-term interest rates. These results have implications for structural and macroeconomic policies that we also discuss.
Keywords: Hysteresis, NAIRU, Labour Market Institutions, Impulse-Response analysis
JEL Classification: C32, E24, J64
Suggested Citation: Suggested Citation