The Persistence-Resilience Trade-Off in Unemployment: The Role of Labor and Product Market Institutions

Paolo Manasse and Dimitris Katsikas, eds, “Economic Crisis and Structural Reforms in Southern Europe: Policy Lessons” Routledge, 2018

Quaderni - Working Paper DSE N° 1121

31 Pages Posted: 26 May 2018  

Tolga Aksoy

Yildiz Technical University

Paolo Manasse

Università degli Studi di Bologna - Department of Economics; IGIER, Bocconi University; International Monetary Fund (IMF) - Fiscal Affairs Department

Date Written: May 10, 2018

Abstract

The “great recession” has affected labor markets in Euro-area countries in very different ways. This chapter documents two important aspects of their response: the impact effect of the recession on the rate of unemployment, and the persistence of high unemployment. We find that countries lie on a trade-off between “resilience” and “persistence”: countries where the rate of unemployment is less affected on impact by output shocks (resilience) typically show higher unemployment persistence. We investigate the role of labor and product market institutions, and find evidence that more protected markets are associated to more resilience at the expense of more persistence. This suggests that implementing front loaded “structural reforms” at times of a fiscal consolidation, as many Southern European countries did during the recent crisis, may foster the rise in unemployment and possibly undermine the political support for the reforms. When we estimate the contribution of product and labor market reforms to the rise of unemployment in Southern Europe, however, we find positive, but relatively small effects that are quickly reversed.

Keywords: Structural Reforms, Economic Crisis, Banking Crisis, Labor Market Reforms, Product Market Reforms, Banking Sector Reforms

JEL Classification: E02, E65

Suggested Citation

Aksoy, Tolga and Manasse, Paolo, The Persistence-Resilience Trade-Off in Unemployment: The Role of Labor and Product Market Institutions (May 10, 2018). Paolo Manasse and Dimitris Katsikas, eds, “Economic Crisis and Structural Reforms in Southern Europe: Policy Lessons” Routledge, 2018; Quaderni - Working Paper DSE N° 1121. Available at SSRN: https://ssrn.com/abstract=3176447

Tolga Aksoy (Contact Author)

Yildiz Technical University ( email )

Davutpasa Mh., Esenler
Besiktas, Istanbul 80750
Turkey

Paolo Manasse

Università degli Studi di Bologna - Department of Economics ( email )

Via Strada Maggiore, 45
I-40125 Bologna
Italy
+39 05 1209 2613 (Phone)

IGIER, Bocconi University

Via Sarfatti 25
20136 Milan, MI 20136
Italy
+39 02 5836 3326 (Phone)

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

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