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Are unemployment differentials among advanced economies still explained by the Shocking Institutions Hypothesis?

Author

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  • Campos, Nauro F.
  • Eichenauer, Vera Z.
  • Sturm, Jan-Egbert

Abstract

The average unemployment rate in Europe has been consistently higher than in the United States since 1980. The main explanation offered by a large economics literature is based on the interaction between shocks and institutions (the Shocking Institutions Hypothesis). The contribution of this paper is twofold: to assess whether this prevailing explanation holds once we take into account recent shocks (globalisation, China, etc.) and time-varying labour market institutions; and to offer a decomposition (using the Shapley-Owen approach) of the relative contributions of shocks, institutions and their interactions. While our results confirm the general validity of the Shocking Institutions Hypothesis, we argue that it is more complex and nuanced than originally formulated.

Suggested Citation

  • Campos, Nauro F. & Eichenauer, Vera Z. & Sturm, Jan-Egbert, 2025. "Are unemployment differentials among advanced economies still explained by the Shocking Institutions Hypothesis?," Economic Systems, Elsevier, vol. 49(4).
    • Handle: RePEc:eee:ecosys:v:49:y:2025:i:4:s0939362525000378
    DOI: 10.1016/j.ecosys.2025.101325
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    More about this item

    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • F66 - International Economics - - Economic Impacts of Globalization - - - Labor
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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