Model-Based Indicators of Labour Market Rigidity

36 Pages Posted: 10 Feb 2003

Date Written: April 2001


We derive indicators of labour market flexibility that are comparable across countries and time intervals. Our indicators build on a structural VAR model of real wages, output and unemployment dynamics. We compute our indicators for thirteen OECD countries and for two time periods, and we compare them with existing indicators of labour market flexibility in the literature . The main result of the paper is that we did not find evidence of a closing gap in terms of labour market flexibility between the United States and continental European countries, although our findings suggest that medium-sized and small countries have experienced greater improvements in this regard than the large countries since the mid-eighties.

Keywords: flexibility; labour market reform; unemployment; eurosclerosis; labour market instititutions; EMU

JEL Classification: J20, J21, J41

Suggested Citation

Fabiani, Silvia and Rodriguez-Palenzuela, Diego, Model-Based Indicators of Labour Market Rigidity (April 2001). ECB Working Paper No. 57. Available at SSRN:

Silvia Fabiani (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184

Diego Rodriguez-Palenzuela (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
(49) 69-1344-6480 (Phone)
(49) 69-1344-6575 (Fax) (Fax)

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