Structural or Cyclical? Unemployment in Latvia Since the 2008-09 Financial Crisis
31 Pages Posted: 2 Jul 2013
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Structural or Cyclical? Unemployment in Latvia Since the 2008-09 Financial Crisis
Date Written: June 2013
Abstract
In terms of output decline and increase in unemployment, the economic recession in Latvia that started during the 2008-09 financial crisis was one of the most severe in the world. Using both decomposition of the unemployment rate into structural and cyclical components and Mortensen and Pissarides search and matching approach, we demonstrate that the changes in unemployment should be attributed primarily to cyclical, rather than structural factors; as of 2013, a large share of Latvian unemployment is still cyclical. Our results provide important implications for anti-crisis policy in Latvia and elsewhere in the world: the surge in unemployment was largely a consequence of Latvias austerity policy.
Keywords: Beveridge curve, cyclical unemployment, labour market matching, structural unemployment
JEL Classification: E24, J60
Suggested Citation: Suggested Citation