Spillover effects of economic policy uncertainty on adult and youth unemployment

Abstract

The paper studies the effects of foreign (the US, the UK and the Chinese) and domestic economic policy uncertainty (EPU) shocks on unemployment in Germany, France, Italy and Spain. The analysis is run separately for the rates of adult and youth unemployment. Impulse responses derived from vector autoregressive models show that the magnitudes of the responses of the adult and youth segments of the labour market are quite different. Following an uncertainty shock, the youth unemployment rate increases significantly more than the adult unemployment rate. This is the case for France, Italy and Spain. The German labour market seems to be resistant to foreign (except Chinese) and domestic EPU shocks, while the remaining labour markets, foremost the Spanish and Italian ones, are susceptible to uncertainty shocks, especially to the US EPU shocks.