Abstract
This study analyzes the linkage between dynamic persistence of unemployment and the demand side of the labor market—job creation and destruction with an evolutionary perspective. The Neo-Austrian model predicts that: (i) unemployment is not featured as stationary over the entire sample period. (ii) unemployment is in disequilibria if job creation or job destruction (or both) is in out-of-equilibrium adjustment; (iii) regions with more unemployment compensation benefits or co-ordination problem are featured by higher unemployment persistence compared with low unemployment insurance benefits. The empirical analysis using aggregate-level and state-level data provides empirical support to these predictions. Using a unique dataset, this study finds that the persistence in the unemployment rate is a job destruction phenomenon.
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