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Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions

Listed author(s):
  • Andrea Bassanini
  • Romain Duval

This paper explores the impact of policies and institutions on employment and unemployment of OECD countries in the past decades. Reduced-form unemployment equations, consistent with standard wage setting/price-setting models, are estimated using cross-country/time-series data from 21 OECD countries over the period 1982-2003. In the "average" OECD country, high and long-lasting unemployment benefits, high tax wedges and stringent anti- competitive product market regulation are found to increase aggregate unemployment. By contrast, highly centralised and/or coordinated wage bargaining systems are estimated to reduce unemployment. These findings are robust across specifications, datasets and econometric methods. As policies and institutions affect employment not only via their impact on aggregate unemployment but also through their effects on labour market participation - particularly for those groups "at the margin" of the labour market, group-specific employment rate equations are also estimated. In the "average" OECD country, high unemployment benefits and high tax wedges are found to be associated with lower employment prospects for all groups studied, namely prime-age males, females, older workers and youths. There is also evidence that group-specific policy determinants matter, such as targeted fiscal incentives. The paper also finds significant evidence of interactions across policies and institutions, as well as between institutions and macroeconomic conditions. Consistent with theory, structural reforms appear to have mutually reinforcing effects: the impact of a given policy reform is greater the more employment-friendly the overall policy and institutional framework. Certain more specific interactions across policies and institutions are found to be particularly robust, notably between unemployment benefits and public spending on active labour market programmes as well as between statutory minimum wages and the tax wedge. Finally, it is shown that macroeconomic conditions also matter for unemployment patterns, with their impact being shaped by policies. Cet article explore l'impact des politiques et des institutions sur l'emploi et le chômage dans les pays de l'OCDE au cours des dernières décennies. Des équations réduites de taux de chômage, telles que dérivées par exemple d'un modèle de négociations salariales, sont estimées sur un panel de 21 pays de l'OCDE sur la période 1982-2003. Il ressort que, dans le pays «moyen» de l'OCDE, le taux moyen de remplacement des indemnités chômage, le coin fiscalo-social et le degré de réglementation des marchés de produits augmentent le taux de chômage structurel. A contrario, il apparaît qu'un haut degré de centralisation/co-ordination des négociations salariales réduit le chômage structurel. Ces résultats sont robustes à des changements de spécification, d'échantillon et de méthode d'estimation économétrique. Étant donné que les politiques et les institutions affectent l'emploi non seulement via leur impact sur le chômage mais aussi au travers de leurs effets sur la participation au marché du travail .en particulier pour les groupes « à la marge » du marché du travail, des équations d'emploi par groupes sont également estimées. Il ressort que dans le pays «moyen» de l'OCDE, le taux de remplacement des indemnités chômage et le coin fiscalo-social réduisent les perspectives d'emplois de chacun des groupes étudiés, à savoir les hommes de 25 à 55 ans, les femmes, les travailleurs âgés et les jeunes. Certains déterminants spécifiques à chaque groupe jouent également un rôle, en particulier les incitations fiscales ciblées. Le document conclut également à l.existence d.interactions significatives entre politiques et institutions, de même qu.entre institutions et chocs. En accord avec la théorie, il ressort également que les effets des réformes structurelles se renforcent mutuellement : l'impact d'une réforme donnée est d'autant plus fort que l'ensemble des autres politiques et institutions sont déjà favorables à l'emploi. Certaines interactions plus spécifiques entre politiques apparaissent particulièrement robustes, notamment entre le taux de remplacement des indemnités chômage et les dépenses en politiques actives en faveur de l'emploi, ou encore entre le salaire minimum et le coin fiscalo-social. Enfin, l'article montre que les conditions macro-économiques affectent le chômage et que cet impact dépend des politiques.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 486.

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Date of creation: 02 Jun 2006
Handle: RePEc:oec:ecoaaa:486-en
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