How Labour Market Flexibility Affects Unemployment: Long‐Term Implications of the Chain Reaction Theory

Karanassou, Marika; Snower, Dennis J.

doi:10.1111/1468-0297.00318

Cited by 47 publications

(52 citation statements)

References 13 publications

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“…Process inertia is well documented in the literature on chain reaction theory (Karanassou, Sala and Salvador, 2008) and is due to the presence of labour turnover costs (hiring, training and dismissal) and price and wage staggering, and to the existence of internal markets, unemployment duration effects and adjustments in the labour supply (because of emigration, for example). Another important factor is that the processes are interconnected with one another and with exogenous variables, the result being that external shocks create spillover effects, amplifying their short-run impact on the unemployment rate and extending their duration, while preventing the unemployment rate from converging on an invariant level in the long term (Karanassou andSnower, 1997 and.…”

Section: Literature Review 1 Chain Reaction Theory: Concept and mentioning

confidence: 99%

“…This modelling of chain reaction theory deals with one of the main limitations of the NAIRU approach, which assumes that models of the unemployment rate can only include exogenous variables 2 Chain reaction theory was developed in Karanassou and Snower (1996). For a review, see Karanassou (1998), Karanassou and Snower (1997 and Henry, Karanassou and Snower (2000), among others.…”

Section: Literature Review 1 Chain Reaction Theory: Concept and mentioning

confidence: 99%

See 1 more Smart Citation

Unemployment dynamics in Uruguay: An analysis using chain reaction theory

Leites¹,

Porras²

2017

CEPAL Review

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This article analyses unemployment dynamics in Uruguay within the framework of chain reaction theory and offers evidence to account for the remarkable drop in unemployment over recent years. It confirms the impact of exogenous variables on the long-run trajectory of unemployment and rules out the notion that its long-run level gravitates around an equilibrium value. It identifies inertia processes in labour supply and demand and in wages, whose mutual interactions mean that shocks have persistent effects on unemployment. There are also complementary spillover effects that influence the magnitude and duration of the effects of shocks. Lastly, the article emphasizes that growth in the capital stock and capital productivity accounts for some of the substantial decline in unemployment in Uruguay since 2003.

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Section: Literature Review 1 Chain Reaction Theory: Concept and mentioning

confidence: 99%

Section: Literature Review 1 Chain Reaction Theory: Concept and mentioning

confidence: 99%

Unemployment dynamics in Uruguay: An analysis using chain reaction theory

Leites¹,

Porras²

2017

CEPAL Review

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“…Along this process, the wage inertia coefficient decreases progressively, the standard errors of the equation are reduced and the log-likelihood increased. Because this reflects just partially the full analysis undertaken, it is important to mention that the selection was made according to the Akaike Information Criterion and the Schwarz Bayesian Criterion (for example, ∆g t was also included in equations E1−E5, but the resulting specifications were inferior to the ones presented) 14 .…”

Section: Estimatesmentioning

confidence: 99%

Institutions, capital stock and wage setting in Spain

Sala¹

2009

Applied Economics

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This paper confronts two distinct perspectives of the labour market: the institutionalist view -highlighting equilibrium and labour market institutions- and the Chain Reaction Theory -emphasising dynamics and the growth drivers' role in labour market performance-. We consider the ratio of public to private capital stock as a growth driver relevant to the labour market; provide different economic rationales for this ratio to exert a negative influence in wage setting; and explore its empirical relevance in the context of a wage setting curve for Spain comprising the standard variables. There are two main results. First, several institutional variables taken to be critical to explain unemployment in the mainstream literature are not relevant for the Spanish wage setting curve. Second, there is a negative and significant influence of the ratio of public to private capital stock, which is robust to different specifications of the wage setting equation

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“…Karanassou and Snower (1998) offer another theoretical model in which the presence of institutions that increase unemployment persistence also implies permanent unemployment effects of increased economic turbulence. In their model, labour demand and labour supply curves are continually drifting under the influence of new exogenous shocks, so that lagged adjustment processes towards a natural unemployment rate never have a chance to work themselves out entirely.…”

confidence: 99%