Do labor market institutions matter for business cycles?

Stefano Gnocchi, Andresa Lagerborg, Evi Pappa

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)

Abstract

© 2014 Elsevier B.V. Using panel data of 19 OECD countries observed over 40 years and data on specific labor market reform episodes we conclude that labor market institutions matter for business cycle fluctuations. Spearman partial rank correlations reveal that more flexible institutions are associated with lower business cycle volatility. Turning to the analysis of reform episodes, wage bargaining reforms increase the correlation of the real wage with labor productivity and the volatility of unemployment. Employment protection reforms increase the volatility of employment and decrease the correlation of the real wage with labor productivity. Reforms reducing replacement rates make labor productivity more procyclical.
Original languageEnglish
Pages (from-to)299-317
JournalJournal of Economic Dynamics and Control
Volume51
DOIs
Publication statusPublished - 1 Feb 2015

Keywords

  • Business cycles
  • Difference-in-difference regressions
  • Labor market institutions
  • Principal component analysis

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