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Institutional Determinants of Unemployment in OECD Countries: Does the Deregulatory View Hold Water?

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  • Baccaro, Lucio
  • Rei, Diego
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    Abstract

    The view that unemployment is caused by labor market rigidities and should be addressed through systematic institutional deregulation has gained broad currency and has been embraced by national and international policymaking agencies alike. It is unclear, however, whether there really is robust empirical support for such conclusions. This article engages in an econometric analysis comparing several estimators and specifications. It does not find much robust evidence either of labor market institutions direct effects on unemployment rate, or of a more indirect impact through the magnitude of adverse shocks. At the same time, we find little support for the opposite, proregulatory position as well: the estimates show a robust positive relationship between union density and unemployment rates; also, there is no robust evidence that the within-country variation of bargaining coordination is associated with lower unemployment (as frequently argued), nor is it clear that bargaining coordination moderates the impact of other institutions. All in all, restrictive monetary policies enacted from an independent central bank and other determinants of real interest rates appear to play a more important role in explaining unemployment than institutional factors.Many thanks to participants in the 2d CofFEE Europe Workshop, as well as Peter Auer, Emilio Castilla, Rob Franzese, Andrew Glyn, Lane Kenworthy, Bernhard Kittel, Stephen Nickell, Michael Piore, Naren Prasad, and Marco Vivarelli for comments on previous versions of this article.

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    Bibliographic Info

    Article provided by Cambridge University Press in its journal International Organization.

    Volume (Year): 61 (2007)
    Issue (Month): 03 (July)
    Pages: 527-569

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    Handle: RePEc:cup:intorg:v:61:y:2007:i:03:p:527-569_07

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    Cited by:
    1. Feldmann, Horst, 2012. "Real interest rate and labor market performance in developing countries," Economics Letters, Elsevier, vol. 117(1), pages 200-203.
    2. Engelbert Stockhammer & Erik Klär, 2011. "Capital accumulation, labour market institutions and unemployment in the medium run," Cambridge Journal of Economics, Oxford University Press, vol. 35(2), pages 437-457.
    3. González, Ignacio & Sala, Hector, 2013. "Investment Crowding-Out and Labor Market Effects of Financialization in the U.S," IZA Discussion Papers 7272, Institute for the Study of Labor (IZA).
    4. Sachs, Andreas & Schleer, Frauke, 2013. "Labour market performance in OECD countries: A comprehensive empirical modelling approach of institutional interdependencies," ZEW Discussion Papers 13-040, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    5. Elisa Gamberoni & Erik Von Uexkull & Sebastian Weber, 2010. "The Roles of Openness and Labor Market Institutions for Employment Dynamics during Economic Crises," World Bank Other Operational Studies 10155, The World Bank.
    6. Engelbert Stockhammer & Simon Sturn, 2008. "The Impact of Monetary Policy on Unemployment Hysteresis," IMK Working Paper 15-2008, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    7. Dario JUDZIK & Hector SALA, 2013. "Productivity, deunionization and trade: Wage effects and labour share implications," International Labour Review, International Labour Organization, vol. 152(2), pages 205-236, 06.
    8. Andrea Bassanini & Romain Duval, 2009. "Unemployment, institutions, and reform complementarities: re-assessing the aggregate evidence for OECD countries," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 40-59, Spring.
    9. Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    10. Horst Feldmann, 2013. "Technological unemployment in industrial countries," Journal of Evolutionary Economics, Springer, vol. 23(5), pages 1099-1126, November.
    11. Lucio Baccaro & Marco Simoni, 2010. "Organizational determinants of wage moderation," LSE Research Online Documents on Economics 33510, London School of Economics and Political Science, LSE Library.
    12. Sachs, Andreas, 2010. "A Bayesian approach to determine the impact of institutions on the unemployment rate," ZEW Discussion Papers 10-058, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    13. Andreas Sachs, 2012. "What really drives unemployment? A bayesian approach to determine the impact of institutions on the unemployment rate," Economics Bulletin, AccessEcon, vol. 32(1), pages 1008-1019.
    14. Oesch, Daniel, 2009. "Explaining high unemployment among low-skilled workers: Evidence from 21 European and Anglo-Saxon countries, 1991-2006," MPRA Paper 21041, University Library of Munich, Germany.
    15. Peter Huber, 2013. "Labour Market Institutions and Regional Unemployment Disparities," WWWforEurope Working Papers series 29, WWWforEurope.

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