In this paper, a small macroeconomic model of the Dutch labour market is estimated. The model is used to detect the causes of the rise in unemployment since the early 70s. In contrast to existing empirical work, we treat labour supply as an endogenous variable. This adjustment appears to have serious consequences for the conclusions drawn. In particular, we show that the detrimental effect of the replacement rate on unemployment has been overestimated in earlier studies. Furthermore, we include contractual working time in the analysis. Our estimates imply that work sharing does reduce unemployment, but at a high cost. Because hourly wages rise in response to reduced working hours, aggregate output is damaged quite strongly.

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Journal of Policy Modeling
Erasmus School of Economics

Dur, A.J. (2001). Explaining unemployment trends in the Netherlands. Journal of Policy Modeling, 23(2), 161–168. doi:10.1016/S0161-8938(00)00034-X