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Unemployment and Labor Market Institutions: Theory and Evidence from the GCC

Author

Listed:
  • Nabi, Mahmoud Sami
  • Suliman, Mohamed Osman

Abstract

The theoretical model delves into the relationship between labor market institutions and unemployment by proving two propositions: (1) allowing informal activity bolsters job creation, and (2) if the institutional environment is initially, sufficiently, weak, then mitigating it will lower unemployment. Simulating the model with the GCC’s unemployment for the period 1990-2007 allows us to decipher the validity of the model. The institutional environment is represented in this simulation by social insurance which is captured through oil prices. Hence, an increase in oil prices is assumed to lead to higher social insurance and, therefore ,to higher cost of hiring labour . The parameters are selected with the objective of minimizing the error gap between the effective unemployment rate and the simulated unemployment rate . The effective unemployment rate is constructed as a weighted average of the unemployment rate of nationals and non-nationals. The weights are the shares of national and non-national labour-force in the GCC countries. Expositional simulations verified the second proposition. Thus, improving labor market institutions, that are initially weak may discernibly alleviate unemployment problems in the GCC.

Suggested Citation

  • Nabi, Mahmoud Sami & Suliman, Mohamed Osman, 2008. "Unemployment and Labor Market Institutions: Theory and Evidence from the GCC," MPRA Paper 11858, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:11858
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    File URL: https://mpra.ub.uni-muenchen.de/11858/1/MPRA_paper_11858.pdf
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    References listed on IDEAS

    as
    1. Elhanan Helpman & Oleg Itskhoki, 2010. "Labour Market Rigidities, Trade and Unemployment," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1100-1137.
    2. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Unemployment; institutions; GCC;

    JEL classification:

    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • J0 - Labor and Demographic Economics - - General

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