Labour Market Institutions and Their Contribution to Labour Market Performance in the New EU Member Countries

Ondřej Schneider () and Kamila Fialova
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Ondřej Schneider: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/

No 2007/27, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper focuses on the role of labour market institutions in explaining different labour market developments in European countries, with a special attention to the new European Union member countries. Labour market in these two parts of the EU witnessed diverging developments in the late 1990’s. While labour markets indicators generally improved in the “old” EU15, they were exposed to severe shocks in Central Europe. At the same time, Central European labour markets’ institutional background was changing and converging to the EU “standards”. This may allow us to analyse effects of various institutional setups and of their changes on major labour market indicators. We aim at complementing several studies from the late 1990’s by using more recent data that allow us to compare institutional setups from the mid 1990’s and early 2000’s both in “old” and “new” EU member states. We estimate effects of labour market institutions on various performance indicators (unemployment, long-term unemployment, employment, activity rate). While institutional arrangements played relatively minor role in both unemployment measures, they were much more powerful in explaining labour supply decisions. Our results confirm that high taxes and stricter employment protection increase unemployment and depress activity rate. We also show that active labour market policies seem to reduce unemployment and increase activity rate. Statistical tests further do not indicate that there is a difference in the institutional effects between “old” and “new” EU members.

Keywords: labour market; unemployment; European Union; labour market institutions (search for similar items in EconPapers)
JEL-codes: J48 J51 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2007-11, Revised 2007-11
New Economics Papers: this item is included in nep-eec, nep-lab and nep-tra
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