Labor Market Rigidity and Structural Shocks: An Open-Economy Approach for International Comparisons
We construct performance-based measures of labor market rigidity considering an open economy framework. We derive and estimate an indicator that depends exclusively on the theoretical measure of unions' bargaining power, with which we rank a sample of 18 heterogeneous countries. The indicator is obtained from unemployment persistence to structural shocks identified using a SVAR with longrun restrictions. We find that Korea, Hong Kong, Chile and the US are relatively flexible, while Germany, Sweden, Spain and Colombia are among the most rigid labor markets. Our index shows high correlation with labor market performance and institutional regulation variables, mainly associated to union representation.
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