Business Cycle Comovement and Labor Market Institutions: An Empirical Investigation
AbstractThis paper examines the impact of labor market institutions (LMI) on business cycle (BC) synchronization. The authors first develop a two-country right-to-manage model of wage bargaining. They find that, following a symmetric demand change, cross-country differences in LMI generate divergent responses in employment and output. They then investigate the empirical relevance of this result using panel data of 20 OECD countries observed over 40 years. Their estimation strategy controls for a large set of possible factors influencing GDP correlations, which allows to confront their results with those found in previous studies. Consistently with their theoretical results, they find that similar labor markets tend to favor more synchronized cycles. In particular, disparity in tax wedges yields lower GDP comovement. Besides, interactions between labor market institutions do matter, as they are found to affect the effect of tax wedge divergence on BC synchronization. Their 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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Bibliographic InfoPaper provided by RAND Corporation Publications Department in its series Working Papers with number 511.
Length: 35 pages
Date of creation: May 2007
Date of revision:
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More information through EDIRC
International business cycle; business cycle synchronization; labor market institutions; panel data estimation;
Other versions of this item:
- Raquel Fonseca & Lise Patureau & Thepthida Sopraseuth, 2010. "Business Cycle Comovement and Labor Market Institutions: An Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 865-881, November.
- 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.
- 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; Longitudinal Data; Spatial Time Series
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-02 (All new papers)
- NEP-BEC-2007-09-02 (Business Economics)
- NEP-LAB-2007-09-02 (Labour Economics)
- NEP-MAC-2007-09-02 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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