We compare labor market flows in the United States and Germany between 1980 and 2004. In Germany, average worker flows in and out of unemployment are substantially lower; outflows are equally volatile in both countries; inflows are about twice as volatile in Germany and contribute more to the unemployment rate volatility. We explore four candidates for these differences: unemployment benefits, union bargaining power, employment protection, and the efficiency of matching unemployed workers to open positions. We find that a lower matching efficiency in Germany can explain the bulk of the cross-country differences. It amplifies the business cycle and adds persistence.

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