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Who Bears the Cost of the Business Cycle? Labor-Market Institutions and Volatility of the Youth Unemployment Rate

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  • Daiji Kawaguchi
  • Tetsushi Murao

Abstract

The way age-specific unemployment rates fluctuate over the business cycle differs significantly across countries. This paper examines the effect of labor-market institutions on the fluctuations of age-specific unemployment rates based on panel data of 18 Organisation for Economic Co-operation and Development (OECD) countries between 1971 and 2000. Empirical results suggest that the cost of the business cycle disproportionately falls on youths in countries with stricter employment protection and higher union coverage. These results are consistent with a theoretical prediction that a higher adjustment cost of an existing workforce induces the employment adjustment of new entrants into the labor market.

Suggested Citation

  • Daiji Kawaguchi & Tetsushi Murao, 2011. "Who Bears the Cost of the Business Cycle? Labor-Market Institutions and Volatility of the Youth Unemployment Rate," Global COE Hi-Stat Discussion Paper Series gd10-184, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hst:ghsdps:gd10-184
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    References listed on IDEAS

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    Cited by:

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    2. Steve Bradley & Giuseppe Migali & Maria Navarro Paniagua, 2019. "Spatial variations and clustering in the rates of youth unemployment and NEET," Working Papers 262342718, Lancaster University Management School, Economics Department.
    3. Borsi, Mihály Tamás, 2018. "Credit contractions and unemployment," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 573-593.
    4. Urbánné Mező, Júlia & Udvari, Beáta, 2016. "Munkapiaci rugalmasság és ifjúsági foglalkoztathatóság [Labour-market flexibility and youth employment]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 431-460.
    5. Steve Bradley & Giuseppe Migali & Maria Navarro Paniagua, 2020. "Spatial variations and clustering in the rates of youth unemployment and NEET: A comparative analysis of Italy, Spain, and the UK," Journal of Regional Science, Wiley Blackwell, vol. 60(5), pages 1074-1107, November.
    6. Daiji Kawaguchi & Tetsushi Murao, 2014. "Labor‐Market Institutions and Long‐Term Effects of Youth Unemployment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(S2), pages 95-116, October.
    7. Acedański, Jan, 2016. "Youth unemployment and welfare gains from eliminating business cycles — The case of Poland," Economic Modelling, Elsevier, vol. 57(C), pages 248-262.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General

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