Panel Data Evidence on the Role of Institutions and Shocks for Unemployment Dynamics and Equilibrium

Ragnar Nymoen () and Victoria Sparrman ()
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Victoria Sparrman: Statistics Norway, Postal: P.O Box 8131 Dep, N-0033 Oslo, Norway

No 20/2012, Memorandum from Oslo University, Department of Economics

Abstract: We estimate the quantitative importance of labour market institutions for equilibrium unemployment in OECD. The empirical equation for unemployment is based on the solution of a dynamic macroeconomic model where wages and prices are jointly determined with unemployment. Compared to existing studies, the theoretical model implies a higher order dynamics in the nal equation for unemployment and the sample has more variation in unemployment and in institutions. Finally, we incorporate objectively and automatically selected indicators for structural breaks. We find that institutional variables have statistical signi cance, but that these variables account for relatively little of the overall change in the OECD average unemployment rate. The shocks to the economy have been more important for the evolution in the actual average unemployment rate.

Keywords: OECD area unemployment; dynamics; structural breaks; equilibrium unemployment; wage setting; NAIRU; labour market institutions; automatic variable selection (search for similar items in EconPapers)
JEL-codes: C22 C23 C26 C51 E02 E11 E24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2012-09-18
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (2)

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