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Government Size and Unemployment: Evidence from Industrial Countries

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  • Horst Feldmann

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Abstract

Using data from 19 industrial countries for the period 1985 to 2002, this paper analyzes how the size of the government sector affects unemployment. Controlling for the impact of the business cycle as well as for the impact of all major labor market institutions and unobserved country effects, we find that a large government sector is likely to increase unemployment. It appears to have a particularly detrimental effect on women and the low skilled and to substantially increase long-term unemployment. It seems that dominant stateowned enterprises, a large share of public investment in total investment as well as high top marginal income tax rates and low income threshold levels at which they apply are particularly detrimental. Copyright Springer Science+Business Media, Inc. 2006

Suggested Citation

  • Horst Feldmann, 2006. "Government Size and Unemployment: Evidence from Industrial Countries," Public Choice, Springer, vol. 127(3), pages 443-459, June.
  • Handle: RePEc:kap:pubcho:v:127:y:2006:i:3:p:443-459
    DOI: 10.1007/s11127-005-9003-y
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    References listed on IDEAS

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    Cited by:

    1. Can, Raif, 2015. "The Impact of Employment Protection Legislation on the Unemployment Rate in Selected OECD Countries," MPRA Paper 63329, University Library of Munich, Germany.
    2. Lorenzo E Bernal-Verdugo & Davide Furceri & Dominique Guillaume, 2012. "Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 54(2), pages 251-273, June.
    3. Horst Feldmann, 2008. "Business regulation and labor market performance around the world," Journal of Regulatory Economics, Springer, vol. 33(2), pages 201-235, April.
    4. Horst Feldmann, 2009. "The Quality of Industrial Relations and Unemployment in Developing Countries," Review of Development Economics, Wiley Blackwell, vol. 13(1), pages 56-69, February.
    5. Davide Furceri & Ernesto Crivelli & Joël Toujas-Bernate, 2012. "Can Policies Affect Employment Intensity of Growth? A Cross-Country Analysis," IMF Working Papers 12/218, International Monetary Fund.
    6. Feldmann, Horst, 2012. "Banking deregulation around the world, 1970s to 2000s: The impact on unemployment," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 26-42.
    7. Davide Furceri, 2012. "Unemployment and Labor Market Issues in Algeria," IMF Working Papers 12/99, International Monetary Fund.
    8. Ahmet AYSU & Gökhan DÖKMEN, 2011. "An Investigation on the Relationship between Government Size and Unemployment Rate: Evidence from OECD Countries," Sosyoekonomi Journal, Sosyoekonomi Society, issue 16(16).
    9. Horst Feldmann, 2012. "Product Market Regulation and Labor Market Performance around the World," LABOUR, CEIS, vol. 26(3), pages 369-391, September.
    10. International Monetary Fund, 2014. "Philippines; Selected Issues," IMF Staff Country Reports 14/246, International Monetary Fund.
    11. Feldmann, Horst, 2009. "The unemployment effects of labor regulation around the world," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 76-90, March.
    12. Horst Feldmann, 2006. "Credit Market Regulation and Labor Market Performance Around the World," Kyklos, Wiley Blackwell, vol. 59(4), pages 497-525, November.
    13. Johan Graafland & Bart Compen, 2015. "Economic Freedom and Life Satisfaction: Mediation by Income per Capita and Generalized Trust," Journal of Happiness Studies, Springer, vol. 16(3), pages 789-810, June.
    14. Graafland, J.J. & Compen, B., 2012. "Economic Freedom and Life Satisfaction : A Cross Country Analysis," Discussion Paper 2012-038, Tilburg University, Center for Economic Research.
    15. Alberto Behar & Junghwan Mok, 2013. "Does Public-Sector Employment Fully Crowd Out Private-Sector Employment?," CSAE Working Paper Series 2013-20, Centre for the Study of African Economies, University of Oxford.
    16. Burton A. Abrams & Siyan Wang, 2007. "Government Outlays, Economic Growth and Unemployment: A VAR Model," Working Papers 07-13, University of Delaware, Department of Economics.
    17. Olfa Alouini, 2009. "Country size, economic performance and the political economy of the euro zone : an empirical study of the size divide," Documents de Travail de l'OFCE 2007-01, Observatoire Francais des Conjonctures Economiques (OFCE).
    18. Burton A. Abrams & Siyan Wang, 2006. "The Effect of Government Size on the Steady-State Unemployment Rate: A Structural Error Correction Model," Working Papers 06-05, University of Delaware, Department of Economics.
    19. Burton A. Abrams & Siyan Wang, 2007. "The Effect of Government Size on the Steady-State Unemployment Rate: An Error Correction Model," Working Papers 07-14, University of Delaware, Department of Economics.
    20. Siyan Wang & Burton A. Abrams, 2011. "The Effect of Government Size on the Steady-State Unemployment Rate: A Dynamic Perspective," Working Papers 11-12, University of Delaware, Department of Economics.
    21. Lauren R. Heller & E. Frank Stephenson, 2014. "Economic Freedom And Labor Market Conditions: Evidence From The States," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 56-66, January.
    22. Johanna Kemper, 2016. "Resolving the Ambiguity: A Meta-Analysis of the Effect of Employment Protection on Employment and Unemployment," KOF Working papers 16-405, KOF Swiss Economic Institute, ETH Zurich.
    23. Horst Feldmann, 2009. "The quality of the legal system and labor market performance around the world," European Journal of Law and Economics, Springer, vol. 28(1), pages 39-65, August.
    24. Mahalia Jackman, 2014. "A Note on the Labor Market Effects of Remittances in Latin American and Caribbean Countries: Do Thresholds Exist?," The Developing Economies, Institute of Developing Economies, vol. 52(1), pages 52-67, March.

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