Unemployment and Labour Market Transition Probabilities

Abstract

I. ANALYSING UNEMPLOYMENT: A RESEARCH PROGRAMThere are many kinds of unemployment. An average economist should be able to enumerate at least a dozen without forward notice. This embarrassing abundance of definitions gives a clear indication of the trouble we have pinning unemployment down.Unemployment is generally considered to be an undesirable quantity in a market economy. Although not all of it. Part of it is unavoidable and even considered necessary for an efficient matching of jobs and workers. In this sense one could define —although this would not be easy— an optimal quantity of unemployment taking into account the institutions and stochastics of the labour market. Unemployment under and above this optimum would be inefficient. The next question is: can one avoid too much or too little unemployment through policy measures at reasonable costs? There is no definite answer to that. A lot of heated discussion in macroeconomics focusses on this subject.