Structural unemployment and disequilibrium

Abstract

In this paper, we present a disequilibrium model of the labor market which allows us to distinguish cyclical unemployment due to wage rigidity from structural unemployment. This is done through the insertion, in the exchange condition of an aggregate disequilibrium model, of variables measuring mismatch between disaggregated labor supplies and labor demands. Such a model also allows unemployment and job vacancies to coexist. The model is estimated using Canadian quarterly data from 1966 to 1983. Our results imply that structural unemployment due to inter-industrial shocks while significant is fairly small.