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Unemployment, institutions, and reform complementarities: re-assessing the aggregate evidence for OECD countries

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Andrea Bassanini
Romain Duval

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Abstract

There is no or limited consensus on the quantitative impact of institutions on unemployment, which has led some to question the case for structural reforms. Recent studies suggest also that institutions interact with each other and cannot be analysed in isolation. In this paper, we estimate a standard reduced-form model to explore the institutional determinants of unemployment and assess its robustness using a large battery of robustness checks. We show that, although the impact of each individual policy varies across countries owing to policy interactions, the simple linear model can be used to draw inferences for countries with an average mix of institutions. The model is then extended to encompass systemic interactions, in which individual policies interact with the overall institutional framework. We find relatively robust evidence of broad reform complementarities. Copyright 2009, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oxrep/grp004
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Publisher Info
Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 25 (2009)
Issue (Month): 1 (Spring)
Pages: 40-59
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Handle: RePEc:oup:oxford:v:25:y:2009:i:1:p:40-59

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  2. Baccaro, Lucio & Rei, Diego, 2007. "Institutional Determinants of Unemployment in OECD Countries: Does the Deregulatory View Hold Water?," International Organization, Cambridge University Press, vol. 61(03), pages 527-569, July. [Downloadable!]
  3. Braumoeller, Bear F., 2004. "Hypothesis Testing and Multiplicative Interaction Terms," International Organization, Cambridge University Press, vol. 58(04), pages 807-820, October. [Downloadable!]
  4. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  5. Robert J. Flanagan, 1999. "Macroeconomic Performance and Collective Bargaining: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 37(3), pages 1150-1175, September. [Downloadable!] (restricted)
  6. Giuseppe Fiori & Giuseppe Nicoletti & Stefano Scarpetta & Fabio Schiantarelli, 2007. "Employment Outcomes and the Interaction Between Product and Labor Market Deregulation: Are They Substitutes or Complements?," IZA Discussion Papers 2770, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
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  8. Coe, David T & Snower, Dennis J., 1997. "Policy Complementarities: The Case for Fundamental Labour Market Reform," CEPR Discussion Papers 1585, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  9. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  10. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  11. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
  12. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01. [Downloadable!] (restricted)
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  1. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2009. "Trade and Unemployment: What Do the Data Say?," IZA Discussion Papers 4184, Institute for the Study of Labor (IZA). [Downloadable!]
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