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Unemployment, Labour Market Institutions and Shocks

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  • Luca Nunziata

Abstract

This paper aims to explain the cross sectional differences in, and the time series evolution of, OECD unemployment from 1960 to 1995. We want to know how much of it can be accounted for by changes in labour market institutions, and the interactions of institutions and macroeconomic shocks. Our aim is also to verify the consistency of unemployment fluctuations with the labour cost results presented in Nunziata (2001). Our findings suggest that labour market institutions have a direct significant impact on unemployment in a fashion that is broadly consistent with their impact on real labour costs. Broad movements in unemployment across the OECD can be explained by shifts in labour market institutions, although this explanation relies on high levels of endogenous persistence. We cannot rule out a significant role for institutions through their interaction with adverse shocks, although the estimates do not appear extremely robust in this case. In contrast, the direct effect of institutions still holds when we include the possibility of interactions between shocks and institutions.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2002-W16.

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Date of creation: 01 Jun 2002
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Handle: RePEc:oxf:wpaper:2002-w16

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  14. Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
  15. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
  16. Giuseppe Bertola & Francine D. Blau & Lawrence M. Kahn, 2001. "Comparative Analysis of Labor Market Outcomes: Lessons for the US from International Long-Run Evidence," NBER Working Papers 8526, National Bureau of Economic Research, Inc.
  17. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
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