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

Author

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  • Alain de Serres

    (OECD)

  • Fabrice Murtin

    (OECD)

Abstract

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.

Suggested Citation

  • Alain de Serres & Fabrice Murtin, 2013. "Do Policies that Reduce Unemployment Raise its Volatility?: Evidence from OECD Countries," OECD Economics Department Working Papers 1020, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1020-en
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    File URL: http://dx.doi.org/10.1787/5k4c9kmlg08v-en
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    Cited by:

    1. Paula Garda & Volker Ziemann, 2014. "Economic Policies and Microeconomic Stability: A Literature Review and Some Empirics," OECD Economics Department Working Papers 1115, OECD Publishing.
    2. Orsetta Causa & Alain de Serres & Nicolas Ruiz, 2015. "Can pro-growth policies lift all boats?: An analysis based on household disposable income," OECD Journal: Economic Studies, OECD Publishing, vol. 2015(1), pages 227-268.
    3. John Martin, 2015. "Activation and active labour market policies in OECD countries: stylised facts and evidence on their effectiveness," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-29, December.
    4. Yosuke Jin & Aida Caldera Sánchez & Pilar Garcia Perea, 2017. "Reforms for more and better quality jobs in Spain," OECD Economics Department Working Papers 1386, OECD Publishing.
    5. Orsetta Causa & Alain de Serres & Nicolas Ruiz, 2015. "Structural reforms and income distribution," OECD Economic Policy Papers 13, OECD Publishing.
    6. Bachmann, Ronald & Felder, Rahel, 2017. "Labour market transitions, shocks and institutions in turbulent times: A cross-country analysis," Ruhr Economic Papers 709, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Volker Ziemann, 2013. "Do Structural Policies Affect Macroeconomic Stability?," OECD Economics Department Working Papers 1075, OECD Publishing.
    8. Thor Berger & Carl Benedikt Frey, 2016. "Structural Transformation in the OECD: Digitalisation, Deindustrialisation and the Future of Work," OECD Social, Employment and Migration Working Papers 193, OECD Publishing.
    9. Toyoki Matue, 2017. "Labor Market Institutions and Employment Fluctuations in Dynamic General Equilibrium Models," Discussion Papers 1701, Graduate School of Economics, Kobe University.
    10. François Geerolf & Thomas Grjebine, 2014. "Assessing House Price Effects on Unemployment Dynamics," Working Papers 2014-25, CEPII research center.
    11. Christoph S. Weber, 2017. "The Unemployment Effect of Central Bank Transparency," Working Papers 172, Bavarian Graduate Program in Economics (BGPE).

    More about this item

    Keywords

    business cycle; chômage; fluctuations cycliques; institutions du marché du travail; labour market institutions; persistance du chômage; unemployment; unemployment persistence;

    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
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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