Do Flexible Labor Markets Indeed Reduce Unemployment? A Robustness Check

Robert Vergeer and Alfred Kleinknecht

Review of Social Economy, 2012, vol. 70, issue 4, 451-467

Abstract: Nickell et al . (2005) have frequently been cited as empirical evidence that labor market rigidities cause high unemployment. We find that their model is not robust. Leaving their database unchanged and changing three details in their estimation procedure, it turns out that several policy-relevant coefficients change sign or significance. We conclude that their claim from Non Accelerating Inflation Rate of Unemployment (NAIRU) theory that labor market rigidities cause unemployment is rather shaky. There is a remarkable discrepancy between weak empirical results and sweeping conclusions by policy practitioners with respect to the call for deregulation of labor markets.

Date: 2012
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DOI: 10.1080/00346764.2012.681113

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