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The Response of Wages and Labor Supply Movements to Employment Shocks Across Europe and the United States
Author:
Mr. Alun H. Thomas
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Series:
IMF Working Papers
Volume/Issue:
Volume 1994: Issue 158
Language:
English
Publication Date:
01 Dec 1994
DOI:
https://doi.org/10.5089/9781451857535.001
ISBN:
9781451857535
ISSN:
1018-5941
Pages:
30
Keywords:
WP; employment shock; labor force; standard deviation; wage response; real wage aspiration; wage outcome; Unemployment rate; Employment; Labor force; Unemployment; Real wages; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper assesses the responsiveness of wages and labor force movements to employment shocks across British and U.S. regions and across Europe using a multivariate vector autoregression technique. The paper finds inflexible real wages in all three areas in that each area’s real wage responds very little to employment shocks. However, the response of the labor force to employment shocks is much greater in the United States compared to Europe. The strong labor force response in the United States prevents any persistence in relative regional unemployment rates whereas the lack of mobility in Europe results in persistent unemployment rate differentials across British regions and European nations. Europe must therefore adopt measures to reduce barriers to immobility if it is to succeed in moderating the persistence in relative unemployment rates.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1994: Issue 158