Impact of labour market reforms on economic activity in European Union: short term costs and long term benefits

Martina Basarac Sertic, Anita Ceh Casni and Valentina Vuckovic
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Martina Basarac Sertic: Croatian Academy of Sciences and Arts, Zagreb, Croatia
Anita Ceh Casni: University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia
Valentina Vuckovic: University of Zagreb, Faculty of Economics and Business, Zagreb, Croatia

Financial Theory and Practice, 2015, vol. 39, issue 1, 83-107

Abstract: The main objective of this paper was to quantify the long- and short-term impacts of labour market reforms on economic activity in EU countries, including Croatia. Therefore, we derived a model using the pooled mean group estimator (PMG) for the period from 2000 to 2011. Before performing dynamic panel analysis based on the PMG estimator, the unit root and panel cointegration tests were performed. According to the results, labour market reforms have positive and statistically significant long-term impact on GDP per capita. On the other hand, labour market reforms also have a statistically significant and negative effect on GDP per capita in the short-run. Control variables (industrial production and the rate of the active population) also have significant impacts on GDP per capita. In addition to econometric analysis, we also present an overview of empirical and theoretical research on labour market reforms in developed, developing and transition countries.

Keywords: labour market reforms; European Union; economic crisis; PMG estimator (search for similar items in EconPapers)
JEL-codes: C33 C54 H11 J88 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ipf:finteo:v:39:y:2015:i:1:p:83-107

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