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Do labor market rigidities matter for business cycles? Yes they do

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Author Info

  • Stefano Gnocchi
  • Evi Pappa

Abstract

We study whether labor market institutions affect the volatility and correlations of macroeconomic variables for a sample of 20 OECD countries. Labor market rigidities are characterized with a number of indicators; volatilities and correlations are computed in several ways. Union coverage and replacement ratios in the first year of unemployment are the labor market rigidities that most significantly affect business cycle statistics. Active labor market policies are effective in reducing unemployment volatility in countries with heavily regulated labor markets.

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File URL: http://research.barcelonagse.eu/tmp/working_papers/411.pdf
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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 411.

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Date of creation: Jul 2009
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Handle: RePEc:bge:wpaper:411

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Related research

Keywords: Labor market institutions; Business cycles; OECD countries; rank sum test; active labor market policies;

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References

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  1. Galí, Jordi & van Rens, Thijs, 2010. "The Vanishing Procyclicality of Labor Productivity," IZA Discussion Papers 5099, Institute for the Study of Labor (IZA).
  2. Alessia Campolmi & Ester Faia, 2006. "Cyclical inflation divergence and different labor market institutions in the EMU," Working Paper Series 619, European Central Bank.
  3. Raquel Fonseca & Lise Patureau & Thepthida Sopraseuth, 2008. "Business cycle comovement and labor market institutions: An empirical investigation," THEMA Working Papers 2008-05, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  4. James S. Costain & Michael Reiter, 2003. "Business Cycles, Unemployment Insurance, and the Calibration of Matching Models," CESifo Working Paper Series 1008, CESifo Group Munich.
  5. Nunziata, Luca & Bowdler, Christopher, 2005. "Inflation Adjustment and Labour Market Structures: Evidence from a Multi-Country Study," IZA Discussion Papers 1510, Institute for the Study of Labor (IZA).
  6. Steinar Holden & Fredrik Wulfsberg, 2009. "Wage Rigidity, Institutions, and Inflation," CESifo Working Paper Series 2554, CESifo Group Munich.
  7. Fabio Rumler & Johann Scharler, 2011. "Labor Market Institutions And Macroeconomic Volatility In A Panel Of Oecd Countries," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(3), pages 396-413, 07.
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Citations

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Cited by:
  1. Faccini, Renato & Rosazza Bondibene, Chiara, 2012. "Labour market institutions and unemployment volatility: evidence from OECD countries," Bank of England working papers 461, Bank of England.
  2. Faccini, Renato & Hackworth, Christopher, 2010. "Changes in output, employment and wages during recessions in the United Kingdom," Bank of England Quarterly Bulletin, Bank of England, vol. 50(1), pages 43-50.

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