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Do Policies that Reduce Unemployment Raise its Volatility?: Evidence from OECD Countries

Listed author(s):
  • Alain de Serres


  • Fabrice Murtin


In this paper we examine whether past labour market reforms aiming at reducing the rate of unemployment have raised its long-run volatility. Using non-linear panel data models applied to 24 OECD countries between 1985 and 2007, as well as Monte-Carlo techniques, we do not find any evidence of such policy trade-off. In contrast, we find that reduced unemployment benefit duration, more competition-inducing product market regulation and looser employment protection legislation are associated with a weaker persistence of unemployment over time, which implies a lower volatility of unemployment in the long run. More specifically, the evidence suggests that even in the case of reforms that may have raised the shortterm sensitivity of unemployment to business cycles (such as with the easing of employment protection), the weaker persistence effect dominates the higher cyclical volatility, implying a net reduction in long-term volatility. Est-ce que les politiques qui réduisent le chômage augmentent sa volatilité ? : Une analyse empirique couvrant les pays de l'OCDE Cette étude examine dans quelle mesure les réformes passées du marché du travail visant à réduire le taux de chômage peuvent avoir eu pour effet d’accroître sa volatilité. L’analyse empirique combinant l’estimation de modèles non-linéaires basés sur des données de panel couvrant 24 pays de l’OCDE sur la période 1985-2007 et l’application de techniques de Monte Carlo, n’a pas mis à jour d’éléments permettant d’étayer l’hypothèse d’un tel conflit (trade-off) dans l’impact des politiques publiques du marché du travail. A l’inverse, l’étude montre qu’une réduction de la durée des bénéfices d’assurance chômage, une réforme de la réglementation conduisant à une plus forte concurrence sur le marché des produits et services, ainsi qu’un assouplissement de la législation sur la protection de l’emploi entraînent une plus faible persistance du chômage, impliquant une plus faible volatilité à long terme. Même dans les cas où des réformes ont pu accroître la sensibilité du chômage aux fluctuations cycliques, l’effet de cette plus grande variance cyclique sur la volatilité à long terme est plus que compensée par la baisse de la persistance.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1020.

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Date of creation: 30 Jan 2013
Handle: RePEc:oec:ecoaaa:1020-en
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