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Political Instability and Labor Market Institutions

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  • Lucifora, Claudio

    ()
    (Università Cattolica del Sacro Cuore)

  • Moriconi, Simone

    ()
    (Università Cattolica del Sacro Cuore)

Abstract

This paper investigates the relationship between political instability and labor market institutions. We develop a theoretical model in which some features of the political process, by reducing the future yields of policy interventions, induce an incumbent government to choose labor market institutions that create wage rents and divert resources from public good provision and social insurance. We test these predictions empirically using panel data for 21 OECD countries for the period 1985-2006. We find strong evidence that political turnover and political polarization – our measures of political instability – are associated with a more regulated labor market, lower unemployment benefit replacement rates, and a smaller tax wedge on labor. We show also that there are strong complementarities between different dimensions of political instability, and evaluate their impact on labour market institutions across countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6457.

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Length: 51 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6457

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Related research

Keywords: political instability; labor market institutions; unemployment;

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References

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  1. Aghion, Philippe & Alesina, Alberto F & Trebbi, Francesco, 2002. "Endogenous Political Institutions," CEPR Discussion Papers 3473, C.E.P.R. Discussion Papers.
  2. Fabrizio Carmignani, 2003. "Political Instability, Uncertainty and Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 17(1), pages 1-54, February.
  3. Brugemann, Bjorn, 2006. "Does Employment Protection Create Its Own Political Support?," Working Papers 20, Yale University, Department of Economics.
  4. Marina Azzimonti, 2009. "Barriers to investment in polarized societies," 2009 Meeting Papers 1233, Society for Economic Dynamics.
  5. Biroli, Pietro & Buti, Marco & Turrini, Alessandro Antonio & Van Den Noord, Paul, 2008. "Defying the 'Juncker Curse’: Can Reformist Governments Be Re-elected?," CEPR Discussion Papers 6875, C.E.P.R. Discussion Papers.
  6. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1015-1049, August.
  7. Ruben Enikolopov & Ekaterina Zhuravskaya, 2004. "Decentralization and Political Institutions," Economics Working Papers 0045, Institute for Advanced Study, School of Social Science.
  8. Nicoletti, Giuseppe & Ardagna, Silvia & Alesina, Alberto & Schiantarelli, Fabio, 2005. "Regulation and Investment," Scholarly Articles 2579825, Harvard University Department of Economics.
  9. Alfonso Arpaia & Gilles Mourre, 2009. "Institutions and Performance in European Labour Markets: Taking a Fresh Look at Evidence," Working Papers CEB 09-049.RS, ULB -- Universite Libre de Bruxelles.
  10. 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.
  11. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
  12. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who adjusts and when? On the political economy of reforms," Harvard Institute of Economic Research Working Papers 2108, Harvard - Institute of Economic Research.
  13. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  14. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  15. Jens Høj & Vincenzo Galasso & Giuseppe Nicoletti & Thai-Thanh Dang, 2006. "The Political Economy of Structural Reform: Empirical Evidence from OECD Countries," OECD Economics Department Working Papers 501, OECD Publishing.
  16. Vincent Anesi & Philippe De Donder, 2009. "Party Formation and Minority Ideological Positions," Economic Journal, Royal Economic Society, vol. 119(540), pages 1303-1323, October.
  17. Pushan Dutt & Devashish Mitra, 2008. "Inequality and the Instability of Polity and Policy," Economic Journal, Royal Economic Society, vol. 118(531), pages 1285-1314, 08.
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