Labor market reforms and the supply side in the short and the long run

This project continues and extends research conducted in the first period of the DFG Priority Program, which investigated short and long-run impacts of supply-side policy on macroeconomic dynamics, with a focus on labor market reforms. It links microeconomic aspects of labor markets with frictions as well as other distortions of labor markets with dynamic macroeconomic modelling methods. Embedding natural and government-induced frictions can have important impact on dynamics and steady states of such models. Besides search frictions, the project investigates the effects of wage bargaining, unemployment benefits, subsidies for nonparticipation, time and cyclically dependent spending, and search costs. It places a priority on connecting the macroeconomic analysis to microeconomic foundations using individual worker and firm data. One main objective is to apply the findings of the first period to understanding the slow recovery of southern Europe after implementing labor and product market reforms. In particular, we examine the role of wage and price rigidities in these countries in the presence of financial frictions.
This project continues and extends research conducted in the first period of the DFG Priority Program, which investigated short and long-run impacts of supply-side policy on macroeconomic dynamics, with a focus on labor market reforms. It links microeconomic aspects of labor markets with frictions as well as other distortions of labor markets with dynamic macroeconomic modelling methods. Embedding natural and government-induced frictions can have important impact on dynamics and steady states of such models. Besides search frictions, the project investigates the effects of wage bargaining, unemployment benefits, subsidies for nonparticipation, time and cyclically dependent spending, and search costs. It places a priority on connecting the macroeconomic analysis to microeconomic foundations using individual worker and firm data. One main objective is to apply the findings of the first period to understanding the slow recovery of southern Europe after implementing labor and product market reforms. In particular, we examine the role of wage and price rigidities in these countries in the presence of financial frictions.