Political Instability and Labor Market Institutions

51 Pages Posted: 14 Apr 2012

See all articles by Claudio Lucifora

Claudio Lucifora

Università Cattolica del Sacro Cuore di Milano ; IZA Institute of Labor Economics

Simone Moriconi

Catholic University of the Sacred Heart of Milan

Abstract

This paper investigates the relationship between political instability and labor market institutions. We develop a theoretical model in which some features of the political process, by reducing the future yields of policy interventions, induce an incumbent government to choose labor market institutions that create wage rents and divert resources from public good provision and social insurance. We test these predictions empirically using panel data for 21 OECD countries for the period 1985-2006. We find strong evidence that political turnover and political polarization – our measures of political instability – are associated with a more regulated labor market, lower unemployment benefit replacement rates, and a smaller tax wedge on labor. We show also that there are strong complementarities between different dimensions of political instability, and evaluate their impact on labour market institutions across countries.

Keywords: political instability, labor market institutions, unemployment

JEL Classification: J64, J88, H11

Suggested Citation

Lucifora, Claudio and Moriconi, Simone, Political Instability and Labor Market Institutions. IZA Discussion Paper No. 6457. Available at SSRN: https://ssrn.com/abstract=2039643

Claudio Lucifora (Contact Author)

Università Cattolica del Sacro Cuore di Milano ( email )

Department of Economics and Finance
Largo Gemelli, 1
20123 Milano
Italy
+39 027 234 2525 (Phone)
+39 027 234 2781 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Simone Moriconi

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

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