Working Paper: CEPR ID: DP2492
Authors: Michle Belot; Jan C. van Ours
Abstract: The development of the unemployment rate differs substantially between OECD countries. In recent years some countries have experienced a mild increase, other countries have had a stable unemployment rate, while there are also ?successful? countries in which the unemployment rate has decreased a lot. A common feature of the successful countries is that they implemented a comprehensive set of institutional reforms. In this Paper we present a theoretical and empirical framework to investigate how unemployment is affected by different labour market institutions (LMI) such as labour taxes, unemployment benefits, employment protection, union bargaining power and (de)centralization of bargaining. We argue that complementarities between LMI can be exploited to improve labour market performance. In our empirical analysis of annual data over the period 1960?95 of 18 OECD countries we show that interactions between LMI are indeed important.
Keywords: OECD; unemployment; institutions; complementarities; reforms
JEL Codes: E24; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| labour market reforms design in OECD countries (J48) | unemployment rates (J64) |
| initial institutional settings (D02) | effectiveness of reforms (H11) |
| interactions between various labour market institutions (J08) | effectiveness of reforms (H11) |
| high union bargaining power, strict employment protection, and generous unemployment benefits (J53) | effectiveness of reforms aimed at reducing unemployment (J68) |
| replacement rate of unemployment benefits and tax rate (J68) | unemployment rates (J64) |
| initial institutional framework (D02) | impact of policies and reforms on unemployment (J68) |
| successful countries' reforms (O57) | unemployment rates (J64) |
| counterproductive interactions between reforms and initial conditions (O17) | unemployment rates (J64) |