published in: Labour Economics, 2004, 11 (4), 451-468
This paper studies the role of labor market institutions on unemployment and on the cyclical
properties of job flows. We construct an intertemporal general equilibrium model with search
unemployment and endogenous job turnover, and examine the consequences of introducing
an unemployment benefit, a firing cost and a downward wage rigidity. The model is able to
reproduce the main cyclical properties of a typical European economy. It also suggests that
downward wage rigidities, rather than unemployment benefit or firing cost, may well play a
dominant role in explaining both the high unemployment rate and the cyclical properties of
such an economy.
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