Labor Market Performance in OECD Countries: The Role of Institutional Interdependencies

Andreas Sachs and Frauke Schleer

International Economic Journal, 2019, vol. 33, issue 3, 431-454

Abstract: Reducing rigidity in labor markets is key to lowering unemployment. Theoretical models suggest that the impact of such reforms depends on the country-specific regulatory framework. We test this hypothesis by estimating the impact of changes in six categories of regulation conditional on the country-specific regulatory environment for 26 OECD countries. We overcome problems of modeling a large set of institutional interdependencies by applying a machine learning type model selection approach. We provide evidence for the existence of higher-order institutional interdependencies. We further document that especially for changes in employment protection and the unemployment benefit system the impact on unemployment is mixed across countries.

Date: 2019
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DOI: 10.1080/10168737.2019.1612934

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