The sources of unemployment fluctuations: an empirical application to the Italian case

The paper analyses the rise in Italian unemployment in a small structural VAR (sVAR) based on a Layard–Nickell framework. Unemployment is driven by fully permanent and long-lived but temporary shocks. The unemployment component due to demand shocks appears sizeable, with swings amounting to 4 percentage points, and quite persistent, showing an almost continuous increase since the beginning of the 1980s. Nonetheless, the bulk of unemployment rises is attributed to non-demand factors: temporary (productivity and labour supply) and permanent (labelled as shocks to wage bargaining). The latter explain a 2.5-point rise during the 1970s, but showing no further increases since then.