DP9525 Structural or Cyclical? Unemployment in Latvia Since the 2008-09 Financial Crisis

Author(s): Daria Anosova, Konstantin Sonin, Alf Vanags, Anna Zasova
Publication Date: June 2013
Keyword(s): Beveridge curve, cyclical unemployment, labour market matching, structural unemployment
JEL(s): E24, J60
Programme Areas: International Macroeconomics, Labour Economics, Public Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=9525

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 Latvia’s austerity policy.