Raquel Fonseca () (RAND 1776 Main Street P.O. Box 2138 Santa Monica, CA 90407-2138, USA) Lise Patureau () (THEMA, Université de Cergy-Pontoise Site des Chênes 1 UFR d’Économie et Gestion 33, boulevard du Port 95011 Cergy-Pontoise Cedex, France) Thepthida Sopraseuth () (EPEE, CEPREMAP and PSE Jourdan, Departement d’Economie, Univ. d’Evry, 4 Bd F. Mitterand, 91025 Evry Cedex, France)
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This paper examines the impact of labor market institutions (LMI) on business cycle (BC) synchronization. We first develop a two-country right-to-manage model of wage bargaining. We find that, following a symmetric demand change, cross-country differences in LMI generate divergent responses in employment and output. We then investigate the empirical relevance of this result using panel data of 20 OECD countries observed over 40 years. Our estimation strategy controls for a large set of possible factors influencing GDP correlations, which allows to confront our results with those found in previous studies. Consistently with our theoretical results, we find that similar labor markets across countries tend to favor more their synchronized cycles. In particular, disparities in tax wedges yields lower GDP co movement. Besides, interactions between labor market institutions do matter, enhancing or dampening the effect of tax wedge divergence on BC synchronization. Our overall results suggest that the impact of distortions in demand-supply labor mechanism should be investigated in international business cycle models.
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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number
2008-05.
Find related papers by JEL classification: F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation
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