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Labour market institutions and unemployment revisited


  • Ochsen, Carsten


In this paper the effects of institutional variables on unemployment are reinvestigated for nine OECD countries. The used framework allow for country specific estimates. In this case, the impact of the considered institutional variables on unemployment may differ across countries, not only in absolute terms but also in terms of sign. The main results are the following: First, there are remarkable differences across countries with respect to the estimated effects. Most of the considered variables have at least in one of the considered countries an unexpected effect. Secondly, after a careful examination of the results we identify complex interdependencies between the institutional variables, which bear resemblance to the interaction hypothesis. Thirdly, the estimates with respect to the minimum wage do confirm the theory of monopsonistic labour markets. Fourthly, based on a cross country comparison some evidence is found that some of the considered labour market institutions have a hump-shaped or U-shaped relation to the unemployment rate. All things considered, the results make strong distinctions clear, and the different economies should be extremely cautious to make a copy of the level of a certain labour market institution of the neighbours.

Suggested Citation

  • Ochsen, Carsten, 2005. "Labour market institutions and unemployment revisited," Thuenen-Series of Applied Economic Theory 49, University of Rostock, Institute of Economics.
  • Handle: RePEc:zbw:roswps:49

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    References listed on IDEAS

    1. Michèle Belot & Jan C. van Ours, 2004. "Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?," Oxford Economic Papers, Oxford University Press, vol. 56(4), pages 621-642, October.
    2. Belot, Michele & van Ours, Jan C., 2001. "Unemployment and Labor Market Institutions: An Empirical Analysis," Journal of the Japanese and International Economies, Elsevier, vol. 15(4), pages 403-418, December.
    3. Stephen Nickell, 2003. "Labour Market Institutions and Unemployment in OECD Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(2), pages 13-26, October.
    4. Wolfgang Ochel, 2001. "Collective Bargaining Coverage in the OECD from the 1960s to the 1990s," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 2(4), pages 62-65, February.
    5. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    6. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
    7. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    8. Carsten Ochsen, 2009. "On the measurement of mismatch," Applied Economics Letters, Taylor & Francis Journals, vol. 16(4), pages 405-409.
    9. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence," Papers 15, Uppsala - Working Paper Series.
    10. Ljungqvist, Lars & Sargent, Thomas J, 2002. "The European Employment Experience," CEPR Discussion Papers 3543, C.E.P.R. Discussion Papers.
    11. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March.
    12. Eckhard Hein & Carsten Ochsen, 2003. "Regimes of Interest Rates, Income Shares, Savings and Investment: A Kaleckian Model and Empirical Estimations for some Advanced OECD Economies," Metroeconomica, Wiley Blackwell, vol. 54(4), pages 404-433, November.
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    More about this item


    Beveridge-Curve; employment determination; labour market rigidities; social security;

    JEL classification:

    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions


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