Economic impacts of institutional setup of labour markets (DSGE approach)
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| Year of publication | 2022 |
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| Description | This doctoral thesis aims to evaluate the impact of selected labour market institutions on the labour market dynamics, macroeconomic volatility, and the ability of the Czech economy to cope with external shocks. The main focus of this thesis is on minimum wages and unemployment benefits. We utilise a dynamic stochastic general equilibrium modelling approach by constructing a medium-scale model of a closed economy, with explicit minimum wage and unemployment benefits setting, and two types of households with different levels of the human capital of their members (hereinafter referred to as low-skilled and high-skilled households). In this thesis, a frictional labour market for high-skilled individuals and jobs is introduced. The main findings suggest that changes in the minimum wage setting have only limited short-term implications for the rest of the economy, and these implications concern, in particular, the functioning of the labour market. In the long run, however, there is an optimal non-zero size of the minimum wage wedge that maximises the steady-state levels of overall consumption and product. Changes in unemployment benefits have consequences on both the short-run and long-run development and the economy's ability to cope with external shocks. In the short run, any permanent increases in replacement rates reduce the performance of the rigid high-skilled labour market, push wages up, and mute the macroeconomic response to technology shocks. In the long run, they result in lower equilibrium employment levels, aggregate output, and higher inflation levels but do not affect wages. Based on our analysis, the impact of different setups of the minimum wage or unemployment benefits on the business cycle turned out to be of only limited importance. |
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