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The Determinants of Unemployment across OECD Countries

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  • Andrea Bassanini

    ()
    (ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - CNRS : UMR7017 - Université Panthéon-Assas - Paris II)

  • Romain Duval

    (ECO - Economics Department - OCDE)

Abstract

This paper explores the impact of policies and institutions on unemployment in OECD countries over the past decades. Reduced-form unemployment equations, consistent with standard wage setting/price-setting models, are estimated using cross-country/time-series data from 21 OECD countries over the period 1982-2003. In the “average” OECD country, high and long-lasting unemployment benefits, high tax wedges and stringent anti-competitive product market regulation are found to increase aggregate unemployment. By contrast, highly centralised and/or coordinated wage bargaining systems are estimated to reduce unemployment. These findings are robust across specifications, datasets and econometric methods. The paper also finds evidence of interactions across policies and institutions, as well as between institutions and shocks. Some specific interactions across policies and institutions are found to be particularly robust, notably between unemployment benefits and public spending on active labour market programmes as well as between statutory minimum wages and the tax wedge. Finally, it is shown that macroeconomic conditions also matter for unemployment patterns, with their impact being shaped by policies.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00120584.

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Date of creation: 2006
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Publication status: Published, OECD Economic Studies, 2006, 42, 7-86
Handle: RePEc:hal:journl:halshs-00120584

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Keywords: unemployment; institutions; shocks;

References

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Cited by:
  1. Antonio Bassanetti & Roberto Torrini & Francesco Zollino, . "Changing Institutions in the European Market: the Impact on Mark-ups and Rents Allocation," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance 11, Department of the Treasury, Ministry of the Economy and of Finance.
  2. Bernhard Boockmann & Raimund Krumm & Michael Neumann & Pia Rattenhuber, 2013. "Turning the Switch: An Evaluation of the Minimum Wage in the German Electrical Trade Using Repeated Natural Experiments," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 14(3), pages 316-348, 08.
  3. Bernhard Boockmann, 2010. "The Combined Employment Effects of Minimum Wages and Labor Market Regulation—a Meta-Analysis," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 61(Supplemen), pages 167-188.
  4. Denisa Maria Sologon & O'Donoghue, Cathal, 2011. "Shaping earnings instability: labour market policy and institutional factors," MERIT Working Papers 077, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  5. Flaig, Gebhard & Rottmann, Horst, 2009. "Labour Market Institutions and the Employment Intensity of Output Growth," Munich Reprints in Economics, University of Munich, Department of Economics 20370, University of Munich, Department of Economics.
  6. 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.
  7. 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, Oxford University Press, vol. 25(1), pages 40-59, Spring.
  8. Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 274, Centro de Economía Aplicada, Universidad de Chile.
  9. Andrea Bassanini & Danielle Venn, 2008. "The Impact of Labour Market Policies on Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, Centre for the Study of Living Standards, vol. 17, pages 3-15, Fall.
  10. Feldmann, Horst, 2009. "The Quality of the Legal System and Labor Market Performance around the World," Department of Economics Working Papers, University of Bath, Department of Economics 15966, University of Bath, Department of Economics.
  11. Abdul Abiad & Petya Koeva Brooks & Irina Tytell & Daniel Leigh & Ravi Balakrishnan, 2009. "What’S the Damage? Medium-Term Output Dynamics After Banking Crises," IMF Working Papers 09/245, International Monetary Fund.

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