The Output Gap and Youth Unemployment: An Analysis Based on Okun’s Law

The impact of economic fluctuations on the total unemployment rate is widely studied, however, with respect to age- and gender-specific unemployment, this relationship is not so well examined. We apply the gap version of Okun’s law, aiming to estimate youth unemployment rate sensitivity to output deviations from its potential level. Additionally, we aim to compare whether men or women have a higher equilibrium unemployment rate when output is at the potential level. Contrary to most studies on age- and gender-specific Okun’s coefficients, which assume that the effect of output on unemployment is homogenous, we allow a different effect to occur, depending on the output gap’s sign (positive/negative). The focus of the analysis is on 28 EU countries over the period of 2000–2018. The model is estimated by least squares dummy variable estimator (LSDV), using Prais–Winsten standard errors. We did not find evidence that higher equilibrium unemployment rates are more typical for men or for women. The estimates clearly show the equilibrium level of youth unemployment to be well above that of total unemployment, and this conclusion holds for both genders. We assess greater youth unemployment sensitivity to negative output shock, rather than to positive output shock, but when we take confidence intervals into consideration, this conclusion becomes less obvious.

Optimal taxation under equilibrium unemployment and economic profits

This paper develops a heterogeneous agent model with equilibrium unemployment and economic profits due to productive public investment. We find that the presence of profits plays an important role in the determination of long-run optimal tax policy. The Judd-Chamley optimal zero capital tax result can still hold in the model without profits. In this case, the optimal labour wedge is zero in the long run, resulting in welfare gains for all agents and no conflict of interests between agents. But the Benthamite government chooses to subsidise capital income in the long run in the model with economic profits. The resulting labour wedge is non-zero which generates welfare losses of workers despite welfare gains of capitalists. The government also faces a trade-off between efficiency and equity in this case.

Endogenous Disasters

Market economies are intrinsically unstable. The standard search model of equilibrium unemployment, once solved accurately with a globally nonlinear algorithm, gives rise endogenously to rare disasters. Intuitively, in the presence of cumulatively large negative shocks, inertial wages remain relatively high, and reduce profits. The marginal costs of hiring run into downward rigidity, which stems from the trading externality of the matching process, and fail to decline relative to profits. Inertial wages and rigid hiring costs combine to stifle job creation flows, depressing the economy into disasters. The disaster dynamics are robust to extensions to home production, capital accumulation, and recursive utility. (JEL E22, E23, E24, E32, J41, J63, N12)

Occupational Situation of the Rural Farming and Landless Population in Poland in 2002-2016

The Polish rural population is highly differentiated in terms of occupational situation, mainly because of the rural population’s involvement in individual farming. The purpose of this paper is to investigate the occupational situation of the rural farming and landless population in 2002, 2016 and 2017 in the context of non-farming job opportunities and unemployment risks. The study consists of two parts; the first one analyses the changes to the occupational situation of the rural population in the labour market; the second one identifies the risk of unemployment in selected groups of rural population. Aggregated weighted data and non-aggregated, non-published non-weighted BAEL (Polish LFS) data was used as source material. The study period witnessed a considerable improvement of the rural population’s occupational situation. However, if there is a slowdown in economic growth, the occupational situation of the rural population may deteriorate. In the short and medium term, people involved in individual farming and landless woman, i.e. the group where the real unemployment rate is much lower than equilibrium unemployment, will be particularly severely affected. In the longer term, the adverse impact of business cycles may also deteriorate the situation of landless men if their equilibrium unemployment level “follows” the real unemployment rate.