We discuss the relevance of the internationally adopted methodology for modelling labour market flows and comparing labour market flexibility. This is based on a two-state labour market model that neglects inactivity and uses aggregate stock data to derive transition rates. Traditionally, the results suggest that continental European labour markets are inflexible and unable to adjust quickly to aggregate demand or supply shocks compared with their Anglo-Saxon counterparts. This evidence has driven us to gain a better understanding of the relevance of such a modelling approach and critically discuss its main methodological hypothesis. We relax its assumptions by including inactivity and by using flow data for the period 2010–2017. We compare the results thus obtained with transition rates derived using a three-state labour market model for France, Italy, Spain and the United Kingdom. These countries represent the institutional settings of continental Europe on the one hand and Anglo-Saxon nations on the other. The implied transition rates are much higher, even in continental Europe, when inactivity is considered, thus suggesting that conclusions derived using an incomplete representation of the labour market are misleading. Inactivity therefore plays a crucial role and its inclusion provides a more exhaustive picture of labour mobility.

Baussola, M., Ferretti, C., Mussida, C., Pitfalls in the modeling of labor market flows: a reappraisal, <<INTERNATIONAL REVIEW OF APPLIED ECONOMICS>>, 2019; (n/a): 1-26. [doi:10.1080/02692171.2019.1585765] [http://hdl.handle.net/10807/130287]

Pitfalls in the modeling of labor market flows: a reappraisal

Baussola, Maurizio
Primo
;
Ferretti, Camilla
Secondo
;
Mussida, Chiara
Ultimo
2019

Abstract

We discuss the relevance of the internationally adopted methodology for modelling labour market flows and comparing labour market flexibility. This is based on a two-state labour market model that neglects inactivity and uses aggregate stock data to derive transition rates. Traditionally, the results suggest that continental European labour markets are inflexible and unable to adjust quickly to aggregate demand or supply shocks compared with their Anglo-Saxon counterparts. This evidence has driven us to gain a better understanding of the relevance of such a modelling approach and critically discuss its main methodological hypothesis. We relax its assumptions by including inactivity and by using flow data for the period 2010–2017. We compare the results thus obtained with transition rates derived using a three-state labour market model for France, Italy, Spain and the United Kingdom. These countries represent the institutional settings of continental Europe on the one hand and Anglo-Saxon nations on the other. The implied transition rates are much higher, even in continental Europe, when inactivity is considered, thus suggesting that conclusions derived using an incomplete representation of the labour market are misleading. Inactivity therefore plays a crucial role and its inclusion provides a more exhaustive picture of labour mobility.
Inglese
Baussola, M., Ferretti, C., Mussida, C., Pitfalls in the modeling of labor market flows: a reappraisal, <<INTERNATIONAL REVIEW OF APPLIED ECONOMICS>>, 2019; (n/a): 1-26. [doi:10.1080/02692171.2019.1585765] [http://hdl.handle.net/10807/130287]
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