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Title page
Contents
Abstract 3
1. Introduction 4
2. Data, measurement and empirical findings 9
2.1. Data sources 9
2.2. Measurement framework 9
2.3. A first look at the data 10
2.4. Empirical findings 10
3. The model 16
3.1. Economic environment 16
3.2. Bellman equations 20
3.3. Policy functions 24
3.4. Free entry and equilibrium 25
4. Calibration and model fit 26
4.1. Calibration 26
4.2. Model fit 30
5. Quantitative analysis 34
5.1. Key mechanisms 35
5.2. Sources of cross-country employment differences 37
6. Conclusion 43
References 43
Appendix: For Online Publication 47
A. Data Appendix 47
B. Model Appendix 60
C. Additional model results 68
Table 1. Decomposition of aggregate employment differences based on equation (3) 12
Table 2. Decomposition measuring the role of each transition probability 15
Table 3. States, decisions and value functions 20
Table 4. Common preset parameter values 28
Table 5. Country-specific parameter values 29
Table 6. Model fit to targeted moments 31
Table 7. Sources of cross-country employment differences (percentage points) 39
Table 8. Decomposition of employment elasticities (aggregate and by demographic groups) 42
Figure 1. Cross-country standard deviation of employment and labor force participation 5
Figure 2. Transition probabilities in and out of employment 11
Figure 3. Decomposition measuring the role of each transition probability 14
Figure 4. Model fit to transition probabilities across country/gender/age cells 32
Figure 5. Model fit to the age profile of transition probabilities: Average of the 'big five' 33
Figure 6. Model fit to the age profile of employment rates: All workers 34
Figure 7. Employment variance decomposition: Model vs. data 35
Figure 8. Model mechanisms driving the age profile of worker flows 36
Table A1. Description of data sources 48
Table A2a. Average transition probabilities: Men 54
Table A2b. Average transition probabilities: Women 55
Table A3a. Decomposing the employment gap: Men 57
Table A3b. Decomposing the employment gap: Women 58
Figure A1. Actual and Markov-implied employment rates 51
Figure A2. Transition rates from EU-SILC compared with LFS 52
Figure A3. Decomposition measuring the role of each transition probability in the 'big five' 59
Figure C1. Model fit to transition probabilities: France 68
Figure C2. Model fit to transition probabilities: Germany 69
Figure C3. Model fit to transition probabilities: Italy 70
Figure C4. Model fit to transition probabilities: Spain 71
Figure C5. Model fit to transition probabilities: The U.K. 72
Figure C6. Model fit to age profile of participation rates: All workers 73
Figure C7. Model fit to age profile of unemployment rates: All workers 73
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