The Effects of IMF Conditional Programs on the Unemployment Rate

94 Pages Posted: 30 Jan 2020 Last revised: 21 Jul 2022

See all articles by Michael Chletsos

Michael Chletsos

University of Piraeus - Department of Economics

Andreas Sintos

University of Piraeus - Department of Economics

Date Written: October 14, 2020

Abstract

The fundamental mission of the International Monetary Fund (IMF) is to ensure global financial stability and to assist countries in economic turmoil. Although there is a consensus that IMF-supported programs can have a direct effect on the labor market of recipient countries, it remains unclear how IMF participation decision and conditionalities attached to IMF loans can affect the unemployment rate of borrowing countries. Using a world sample of countries from 1980 to 2014, we investigate how lending conditional programs of the IMF affect the unemployment rate. Our analyses account for the selection bias related to, first, the IMF participation decision and, second, the conditions included within the program. We show that IMF program participation significantly increases the unemployment rate of recipient countries. Once we control for the number of conditions, however, we find that only IMF conditions have a detrimental and highly significant effect on the unemployment rate. There is evidence that the adverse short-run effect of IMF conditions holds robust in the long-run. Disaggregating IMF conditionality by issue area, we find adverse effects on the unemployment rate for four policy areas: labor market deregulation, reforms requiring privatization of state-owned enterprises, external sector reforms stipulating trade and capital account liberalization, and fiscal policy reforms that restrain government expenditure. Our initial results are found to be robust across alternative empirical specifications.

Keywords: unemployment rate, IMF lending programs, IMF conditionality, structural adjustment

JEL Classification: J21, F33, F34, F53

Suggested Citation

Chletsos, Michael and Sintos, Andreas, The Effects of IMF Conditional Programs on the Unemployment Rate (October 14, 2020). Available at SSRN: https://ssrn.com/abstract=3515996 or http://dx.doi.org/10.2139/ssrn.3515996

Michael Chletsos

University of Piraeus - Department of Economics

80, Karaoli and Dimitriou Str, 18534
Piraeus, Greece
Greece

Andreas Sintos (Contact Author)

University of Piraeus - Department of Economics ( email )

Athens
Greece

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