Working Paper: NBER ID: w8526
Authors: Giuseppe Bertola; Francine D. Blau; Lawrence M. Kahn
Abstract: We analyze a 1960-96 panel of OECD countries to explain why the US moved from relatively high to relatively low unemployment over the last three decades. We find that while macroeconomic and demographic shocks and changing labor market institutions explain a modest portion of this change, the interaction of these shocks and labor market institutions is the most important factor explaining the shift in US relative unemployment. Our finding of the central importance of these interactions is consistent with Blanchard and Wolfers (2000). We also show that, controlling for country- and time-specific effects, high employment is associated with low wage levels and high levels of wage inequality. These findings suggest that US relative unemployment has fallen in recent years in part because its more flexible labor market institutions allow shocks to affect real and relative wages to a greater degree than is true in other countries. Disaggregating, we find that the employment of both younger and older people fell sharply in other countries relative to the United States since the 1970s, with much smaller differences in outcomes among the prime-aged. In the late 1990s, the US had lower unemployment than our models predict, suggesting exceptionally favorable recent US experience.
Keywords: No keywords provided
JEL Codes: J5; J6; E0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic shocks + labor market institutions (J08) | US relative unemployment (J64) |
| flexible labor market (J46) | real and relative wages (J31) |
| real and relative wages (J31) | US unemployment rates (J64) |
| high employment (J68) | low wage levels (J31) |
| high employment (J68) | high levels of wage inequality (J31) |
| younger and older individuals (J14) | decline in employment relative to US (F66) |