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Do labor market institutions matter for business cycles?

Stefano Gnocchi (), Andresa Lagerborg () and Evi Pappa ()

Journal of Economic Dynamics and Control, 2015, vol. 51, issue C, 299-317

Abstract: 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.

Keywords: Labor market institutions; Business cycles; Principal component analysis; Difference-in-difference regressions (search for similar items in EconPapers)
JEL-codes: E32 J01 J08 (search for similar items in EconPapers)
Date: 2015
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