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Why There Is Debate Over Labor Market Institutions: A Perspective On Long-Term Unemployment Rate


  • DING, Hong


This paper tests economic impacts of labor market institutions on employment of OECD nations from the perspective of long-term unemployment rate (LUR) in order to alleviate endogeneity bias existed in the current literature on this topic, which is the root of the long-lasting debate over significance of these effects. Based on careful analysis of the model specifications of past literature, a set of models with dependent variable of LUR are subject to various robustness tests and compared with other models in literature, policy simulation is then conducted based on the best specification after these tests. We find that some institutions, particularly tax wedge, union density and their interaction do affect LUR, which has profound implication for institutions’ impacts on standard unemployment rate and provide further evidence in support of deregulation view held by IMF.

Suggested Citation

  • DING, Hong, 2008. "Why There Is Debate Over Labor Market Institutions: A Perspective On Long-Term Unemployment Rate," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 8(2), pages 37-54.
  • Handle: RePEc:eaa:aeinde:v:8:y:2008:i:2_4

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    References listed on IDEAS

    1. Rose, Andrew K., 2004. "Do WTO members have more liberal trade policy?," Journal of International Economics, Elsevier, vol. 63(2), pages 209-235, July.
    2. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, vol. 72(1), pages 151-175, May.
    3. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    4. Ben-David, Dan & Papell, David H., 1997. "International trade and structural change," Journal of International Economics, Elsevier, vol. 43(3-4), pages 513-523, November.
    5. Vogelsang, Timothy J., 1997. "Wald-Type Tests for Detecting Breaks in the Trend Function of a Dynamic Time Series," Econometric Theory, Cambridge University Press, vol. 13(06), pages 818-848, December.
    6. Irwin, Douglas A, 1995. "The GATT in Historical Perspective," American Economic Review, American Economic Association, vol. 85(2), pages 323-328, May.
    7. Andrew K. Rose, 1991. "Why Has Trade Grown Faster than Income?," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 417-427, May.
    8. Perron, Pierre & Vogelsang, Timothy J, 1992. "Nonstationarity and Level Shifts with an Application to Purchasing Power Parity," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 301-320, July.
    9. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    10. Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
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    More about this item


    labor market institutions; deregulation; endogeneity; robustness test.;

    JEL classification:

    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy


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