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Labour market fluctuations in GIPS – shocks vs adjustments

Marek Antosiewicz (Institute for Structural Research, Warsaw, Poland) (Warsaw School of Economics, Warsaw, Poland)
Piotr Lewandowski (Institute for Structural Research, Warsaw, Poland)

International Journal of Manpower

ISSN: 0143-7720

Article publication date: 2 October 2017




The purpose of this paper is to identify factors behind cyclical fluctuations and differences in adjustments to shocks in Greece, Italy, Portugal and Spain (GIPS) and a reference country – Germany. The authors try to answer the question whether the GIPS countries could have fared differently in the Great Recession if they reacted to shocks affecting them like a resilient German economy would have.


The authors use a DSGE model of real open economy with search and matching on the labour market and endogenous job destruction, estimated separately for each country. The authors calculate impulse response functions, historical decompositions and perform counterfactual simulations of the response of the German model to the sequence of shocks identified for each of GIPS.


The authors find that all GIPS countries were more vulnerable to productivity and foreign demand shocks than Germany. They would have experienced lower macroeconomic volatility if they reacted to their shocks like Germany. Employment (unemployment) rates in GIPS would have been less volatile and higher (lower) during the Great Recession, especially in Spain and Greece. Real wage volatility would have been higher, especially in Spain and Portugal.


The trade-off between unemployment and wage adjustments vis-à-vis Germany was the largest in Spain, which also would have experienced lower variability of job separations and hirings. The evolution of the labour market in Greece and Portugal was driven rather by its higher responsiveness to GDP fluctuations than in Germany, whereas Italy emerges as the least responsive labour market within GIPS.



The authors would like to thank Jan Baran and Roma Keister for excellent research assistance, Paweł Kowal for the numerical procedures as well as the commentators and participants of the IZA/NBS/CELSI Conference on European Labor Markets and the Euro Area during the Great Recession in Bratislava and Warsaw International Economic Meeting 2014, and two anonymous referees for their useful comments. All errors are of the authors. Usual disclaimers apply. This research was financed by the National Centre for Research and Development in Poland, Grant No. 11003406/2009.


Antosiewicz, M. and Lewandowski, P. (2017), "Labour market fluctuations in GIPS – shocks vs adjustments", International Journal of Manpower, Vol. 38 No. 7, pp. 913-939.



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