The consequences of labour market flexibility: Panel evidence based on survey data

Rafael DiTella and Robert MacCulloch

No B 02-1999, ZEI Working Papers from University of Bonn, ZEI - Center for European Integration Studies

Abstract: We introduce a new data set on hiring and firing restrictions for 21 OECD countries for the period 1984-90. The data are based on surveys of business people in the countries covered, so the indices we use are subjective in nature. Controlling for country and time fixed effects, and using dynamic panel data techniques, we find evidence that increasing the flexibility of the labor market increases both the employment rate and the rate of participation in the labor force. A conservative estimate suggests that if France were to make its labor markets as flexible as those in the US, its employment rate would increase 1.6 percentage points, or 14% of the employment gap between the two countries. The estimated effects are larger in the female than in the male labor market, although both groups seem to have similar long run coefficients. There is also some evidence that more flexibility leads to lower unemployment rates and to lower rates of long-term unemployment. The analysis of inflows and vacancies present some inconsistencies, although there is some evidence that the correlation between inflows and the business cycle is stronger in more flexible labor markets (again this is stronger for females). We also find some evidence consistent with the hypothesis that inflexible labor markets produce “jobless recoveries” and introduce more unemployment persistence.

Keywords: Job security provisions; subjective data; employment; unemployment (search for similar items in EconPapers)
JEL-codes: J65 (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/39517/1/267150792.pdf (application/pdf)

Related works:
Journal Article: The consequences of labor market flexibility: Panel evidence based on survey data (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:zeiwps:b021999

Access Statistics for this paper

More papers in ZEI Working Papers from University of Bonn, ZEI - Center for European Integration Studies Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().