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| Author: | Di Tella, R. MacCulloch, R. |
| Title: | Europe vs America: institutional hysteresis in a simple normative model |
| Journal: | Journal of Public Economics
2006 : DEC, VOL. 90:12, p. 2161-2186 |
| Index terms: | hysteresis labour markets subsidies unemployment |
| Language: | eng |
| Abstract: | This article shows how the differences in US and European institutions can arise in a normative model. The article focuses on the labor market and the government's decision to set unemployment benefits in response to an unemployment shock. One finding was that adjustment costs of changing benefits introduce hysteresis and can help explain why post-oil shock benefits remained high in Europe but not in the US. The article also discusses empirical evidence concerning the role of corporatism. |
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