Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects

28 Pages Posted: 25 Mar 2012  

Lorenzo E. Bernal-Verdugo

University of Chicago - Booth School of Business - Economics

Davide Furceri

International Monetary Fund (IMF)

Dominique M. Guillaume

Catholic University of Leuven

Date Written: March 2012

Abstract

The aim of this paper is to analyze the relationship between labor market flexibility and unemployment outcomes. Using a panel of 97 countries from 1985 to 2008, the results of the paper suggest that improvements in labor market flexibility have a statistically and significant negative impact on unemployment outcomes (over unemployment, youth unemployment and long-term unemployment). Among the different labor market flexibility indicators analyzed, hiring and firing regulations and hiring costs are found to have the strongest effect.

Keywords: Labor Market, Flexibility, Unemployment, Reforms, Financial Crises, Labor Markets, Oecd, Analysis Of Collective Decision-making

JEL Classification: E29, J60, E32

Suggested Citation

Bernal-Verdugo, Lorenzo E. and Furceri, Davide and Guillaume, Dominique M., Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects (March 2012). IMF Working Paper No. NO.12/64. Available at SSRN: https://ssrn.com/abstract=2028240

Lorenzo E. Bernal-Verdugo

University of Chicago - Booth School of Business - Economics ( email )

Graduate School of Business
1101 East 58th Street
Chicago, IL 60637
United States

Davide Furceri

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Dominique M. Guillaume

Catholic University of Leuven ( email )

Oude Markt 13
Center for Economic Studies
B-3000 Leuven
Belgium
32 16 32 68 40 (Phone)
32 16 32 67 (Fax)

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