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Tenuous Link: Labour Market Institutions and Unemployment in Advanced and New Market Economies
journal contributionposted on 2023-06-08, 09:53 authored by Sabina AvdagicSabina Avdagic, Paola Salardi
International organizations and mainstream economists have consistently promoted the view that labour market rigidities are responsible for high unemployment, and that wide-ranging institutional deregulation is an appropriate policy response. Yet, as demonstrated by recent literature, the empirical support for the deregulatory view is ambiguous. This paper re-assesses this debate by bringing in new evidence from a larger group of countries, which includes advanced and new market economies. Using new data and paying special attention to the robustness of estimation results, we find rather thin support for the deregulatory view. The sensitivity analysis demonstrates that in most cases the adverse effects of institutions disappear with small changes in the sample or the use of alternative estimators and specifications. The impact of institutions is particularly weak in new market economies, where unemployment is related primarily to macroeconomic factors. Overall, our findings challenge the policy orthodoxy that comprehensive deregulation is the universal solution to unemployment.
PublisherOxford University Press
Department affiliated with
- Politics Publications
NotesThis is the first systematic time-series cross-section analysis of the impact of labour market institutions on unemployment that includes not only advanced OECD countries, but also ten new EU member states from CEE.
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