A Macroeconometric Model of Social Security and Juvenile Unemployment with Smooth Quantity-Constraints

This paper analyses in a time-series dimension the effect of unemployment benefits schemes on the unemployment of the young members of the Belgian labor force by applying the framework of smooth quantity-constrains. The model is a representation of an aggregate labor market with the coexistence of both excess-supply and –demand at the micro-level, and with Keynesian spillover from en aggregate sales constraint onto labor demand, all those quantity-constraints being measured by making measured by making use of business surveys data. The effects of unemployment benefits are introduced into the model explicitly on the labor supply behavior, and implicity on real wages by instrumentation of the price variables. Results confirm the rejection of the equilibrium assumption for the juvenile labor market. They also reveal that quantity-constraints play a significant role in explaining (un)employment and price-elasticities, especially the role of social security benefits on unemployment. Another interesting finding is that unemployment benefits do enter the mismatch function for the female juvenile labor market, hence creating a form of friction unemployment.