Equilibrium Unemployment Dynamics in a Panel of OECD Countries

27 Pages Posted: 4 Mar 2015

See all articles by Ragnar Nymoen

Ragnar Nymoen

University of Oslo - Department of Economics

Victoria Sparrman

Statistics Norway; Statistics Norway

Date Written: April 2015


We focus on the equilibrium unemployment rate as a parameter implied by a dynamic aggregate model of wage and price setting. The equilibrium unemployment rate depends on institutional labour market institutions through mark‐up coefficients. Compared with existing studies, the resulting final equation for unemployment has a richer dynamic structure. The empirical investigation is conducted in a panel data framework and uses OECD data up to 2012. We propose to extend the standard estimation method with time dummies to control and capture the effects of common and national shocks by using impulse indicator saturation (WG‐IIS), which has not been previously used on panel data. WG‐IIS robustifies the estimators of the regression coefficients in the dynamic model, and it affects the estimated equilibrium unemployment rates. We find that wage co‐ordination stands out as the most important institutional variable in our data set, but there is also evidence pointing to the tax wedge and the degree of compensation in the unemployment insurance system as drivers of equilibrium unemployment.

Suggested Citation

Nymoen, Ragnar and Sparrman, Victoria, Equilibrium Unemployment Dynamics in a Panel of OECD Countries (April 2015). Oxford Bulletin of Economics and Statistics, Vol. 77, Issue 2, pp. 164-190, 2015, Available at SSRN: https://ssrn.com/abstract=2573400 or http://dx.doi.org/10.1111/obes.12061

Ragnar Nymoen (Contact Author)

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo

Victoria Sparrman

Statistics Norway ( email )

0033 Oslo

Statistics Norway ( email )

N-0033 Oslo

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