Comparison of Optimal Control Solutions in a Labor Market Model

Short-term Unemployment

Unemployment Rate

0.02

0

-0.02

-0.04

-0.06

-0.08

-0.1

Fig. 1. Expansion in Labour Market Programs. (% Deviations from baseline.)

UOt

0246

2.5 Job Creation and Destruction

The equations of motion that close the model are:

V It = Vt - Vt-1 + V OU,t + V OEX,t                                 (11)

Ut ⁼ Ut-1 + FEUV,t + U IEX,t ^- FUEV,t ^- U OEX,t                  (12)

Et ⁼ Et-1 + FUEV,t + EIEX,t ^- FEU V,t ^- EOEX,t                  (13)

2.6 Calibration

The model is calibrated using Australian data for 1998 to produce a baseline
steady-state. The numerical values of the calibration are given in Table 4.
Figure 1 presents a step response for the model with an expansion in ALMPs
from the baseline 5% to 10%. The results are presented as deviations from the
baseline.

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