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Aggregate Earnings and Macroeconomic Shocks: The Role of Labour Market Policies and Institutions

  • Bassanini, Andrea

    ()

    (OECD)

I examine the effect of labour market policies and institutions on the transmission of macroeconomic shocks to the labour market, using both aggregate and industry-level annual data for 23 OECD countries, 23 business-sector industries and up to 29 years. I find that high and progressive labour taxes and generous unemployment benefits amplify labour income fluctuations. By contrast, statutory minimum wages reduce the difference in the sensitivity of wages to aggregate shocks between low-wage and high-wage industries. Dismissal regulations are found to mitigate the impact of shocks on both earnings and employment. Moreover, this mitigation effect is greater in industries where firms have a greater propensity to make staffing changes through dismissals.

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File URL: http://ftp.iza.org/dp6918.pdf
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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6918.

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Length: 44 pages
Date of creation: Oct 2012
Date of revision:
Publication status: published in: Review of Economics and Institutions, 2012, 3 (3), Article 1
Handle: RePEc:iza:izadps:dp6918
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  1. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2010. "The effects of employment protection legislation and financial market imperfections on investment: evidence from a firm-level panel of EU countries," Economic Policy, CEPR;CES;MSH, vol. 25, pages 117-163, 01.
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  3. Philip Du Caju & Theodora Kosma & Martina Lawless & Tairi Rõõm, 2013. "Why firms avoid cutting wages: survey evidence from European firms," Bank of Estonia Working Papers wp2013-2, Bank of Estonia, revised 24 May 2013.
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  7. Chetty, Raj, 2008. "Moral Hazard versus Liquidity and Optimal Unemployment Insurance," Scholarly Articles 9751256, Harvard University Department of Economics.
  8. Tom Krebs, 2007. "Job Displacement Risk and the Cost of Business Cycles," American Economic Review, American Economic Association, vol. 97(3), pages 664-686, June.
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  12. Heathcote, Jonathan & Perri, Fabrizio & Violante, Giovanni L, 2009. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967-2006," CEPR Discussion Papers 7538, C.E.P.R. Discussion Papers.
  13. A Brandolini, 1993. "In Search of a Stylised Fact: Do Real Wages Exhibit a Consistent Pattern of Cyclical Variability?," CEP Discussion Papers dp0112, Centre for Economic Performance, LSE.
  14. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  15. Magda Kandil, 2010. "Demand shocks and the cyclical behavior of the real wage: Some international evidence," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 135-158, May.
  16. Robert A. Hart & Paul J. Devereux, 2006. "Real wage cyclicality of job stayers, within-company job movers, and between-company job movers," Open Access publications 10197/314, School of Economics, University College Dublin.
  17. Bassanini, Andrea & Garnero, Andrea, 2012. "Dismissal Protection and Worker Flows in OECD Countries: Evidence from Cross-Country/Cross-Industry Data," IZA Discussion Papers 6535, Institute for the Study of Labor (IZA).
  18. Leonardi, Marco & Pica, Giovanni, 2007. "Employment Protection Legislation and Wages," IZA Discussion Papers 2680, Institute for the Study of Labor (IZA).
  19. Dustmann, Christian & Glitz, Albrecht & Vogel, Thorsten, 2010. "Employment, wages, and the economic cycle: Differences between immigrants and natives," European Economic Review, Elsevier, vol. 54(1), pages 1-17, January.
  20. Bassanini, Andrea & Nunziata, Luca & Venn, Danielle, 2008. "Job Protection Legislation and Productivity Growth in OECD Countries," IZA Discussion Papers 3555, Institute for the Study of Labor (IZA).
  21. Nicolas L. Dromel & Patrick A. Pintus, 2008. "Are Progressive Income Taxes Stabilizing?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 10(3), pages 329-349, 06.
  22. Andrea Bassanini & Romain Duval, 2009. "Unemployment, institutions and reform complementarities: Re-assessing the aggregate evidence for OECD countries," Post-Print halshs-00395144, HAL.
  23. Andrea Bassanini & Danielle Venn, 2007. "Assessing the Impact of Labour Market Policies on Productivity: A Difference-in-Differences Approach," OECD Social, Employment and Migration Working Papers 54, OECD Publishing.
  24. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  25. Andrea Bassanini & Andrea Garnero & Pascal Marianna & Sébastien Martin, 2010. "Institutional Determinants of Worker Flows: A Cross-Country/Cross-Industry Approach," OECD Social, Employment and Migration Working Papers 107, OECD Publishing.
  26. Leonardi, Marco & Pica, Giovanni, 2010. "Who Pays for It? The Heterogeneous Wage Effects of Employment Protection Legislation," IZA Discussion Papers 5335, Institute for the Study of Labor (IZA).
  27. Haltiwanger, John & Scarpetta, Stefano & Schweiger, Helena, 2006. "Assessing job flows across countries : the role of industry, firm size, and regulations," Policy Research Working Paper Series 4070, The World Bank.
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