Macroeconomic Policy Lessons of Labor Market Frictions

Arbeitspapier

The paper explores the consequences of macroeconomic policy for labor market outcomes in the presence of frictions. It shows how policy may be useful in overriding frictions, as well as how it might generate adverse outcomes. The analysis looks at the main tools of macroeconomic policy and pertains to both the non-stochastic steady state and to business cycle fluctuations. A partial-equilibrium, empirically-grounded model is used to simulate policy effects. It relies on a reduced-form VAR of the actual data to specify the stochastic behavior of exogenous variables, precluding the possibility that labor market results will be affected by misspecifications in other parts of a more general macroeconomic model. The key results are that policy has effects on the stochastic behavior of key variables - measures that reduce unemployment also reduce its persistence and increase the volatility of vacancies. Hiring subsidies and unemployment benefits have substantial effects on labor market outcomes, while employment subsidies or wage tax reductions are not very effective policy instruments.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 446

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles
• Subject: Macroeconomic policy ; labor market frictions ; business cycles ; Beveridge curve ; natural rate of unemployment ; Arbeitsmarkt ; Marktversagen ; Arbeitsplatzsuchmodell ; Personalbeschaffung ; Arbeitsmarktpolitik ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Yashiv, Eran
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/21510
• Last update: 10.03.2025, 11:45 AM CET