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Institutions and Wage Determination: a Multi-country Approach

  • Luca Nunziata

We present an empirical analysis of the determinants of labour cost in OECD countries, with particular reference to the impact of labour market institutions from 1960 to 1994. We show that labour market regulations can explain a large part of the labour cost rise in OECD countries in the last few decades once we control for productivity. These results are consistent with the findings of a companion paper [Nickell, Nunziata and Ochel (2005) "Economic Journal", Vol. 115, pp. 1-27] where the effects of institutions on unemployment are examined. We present also a discussion of the econometric issues related to the estimation of a macro pooled model like ours. We focus, among other things, on the hypothesis of poolability and on the cointegration properties of the model. The explanatory power of the model is finally tested by means of a series of country by country dynamic simulations. Copyright 2005 Blackwell Publishing Ltd.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 67 (2005)
Issue (Month): 4 (08)
Pages: 435-466

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Handle: RePEc:bla:obuest:v:67:y:2005:i:4:p:435-466
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  1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
  2. Alogoskoufis, George & Manning, Alan, 1988. "Wage setting and unemployment persistence in Europe, Japan and the USA," European Economic Review, Elsevier, vol. 32(2-3), pages 698-706, March.
  3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
  4. Baltagi, Badi H. & Li, Qi, 1995. "Testing AR(1) against MA(1) disturbances in an error component model," Journal of Econometrics, Elsevier, vol. 68(1), pages 133-151, July.
  5. Belot, Michèle & van Ours, Jan C, 2000. "Does the Recent Success of some OECD Countries in Lowering their Unemployment Rates lie in the Clever Design of their Labour Market Reforms?," CEPR Discussion Papers 2492, C.E.P.R. Discussion Papers.
  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  7. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  8. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  9. 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.
  10. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  11. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, June.
  12. Daveri, Francesco & Tabellini, Guido, 1997. "Unemployment, Growth and Taxation in Industrial Countries," CEPR Discussion Papers 1681, C.E.P.R. Discussion Papers.
  13. Nickell, Stephen, 1998. "Unemployment: Questions and Some Answers," Economic Journal, Royal Economic Society, vol. 108(448), pages 802-16, May.
  14. Boeri, Tito & Brugiavini, Agar & Calmfors, Lars (ed.), 2001. "The Role of Unions in the Twenty-first Century: A Report for the Fondazione Rodolfo Debenedetti," OUP Catalogue, Oxford University Press, number 9780199246588, July.
  15. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
  16. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
  17. MacKinnon, James G, 1992. "Model Specification Tests and Artificial Regressions," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 102-46, March.
  18. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  19. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
  20. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
  21. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  22. repec:tpr:qjecon:v:105:y:1990:i:3:p:699-726 is not listed on IDEAS
  23. Booth, Alison L & Francesconi, Marco & Zoega, Gylfi, 1999. "Training, Rent-Sharing and Unions," CEPR Discussion Papers 2200, C.E.P.R. Discussion Papers.
  24. McElroy, Marjorie B., 1977. "Weaker MSE criteria and tests for linear restrictions in regression models with non-spherical disturbances," Journal of Econometrics, Elsevier, vol. 6(3), pages 389-394, November.
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