The Rise in Danish Unemployment: Reallocation or Mismatch?*

Abstract

Abstract The two main competing theories for the outward shift in the uv‐curve are investigated: increased separations from employment at a given employment level (reallocation) and decreased levels of hires, given unemployment and vacancies (mismatch). Shifts in the unemployment–vacancy (uv)‐curve and the hiring function are modelled by smooth transition functions, and the hypothesis of analogous shifts in the two curves is tested and accepted. This is interpreted as evidence in favour of the mismatch hypotheses.