The Macroeconomic Impact of Euro Area Labour Market Reforms: Evidence from a Narrative Panel VAR

50 Pages Posted: 2 Oct 2021

Date Written: October 1, 2021

Abstract

Using new quarterly narrative evidence, this paper examines the macroeconomic impact of reforms of unemployment benefits (UB) and employment protection legislation (EPL) in the euro area from a Bayesian narrative panel VAR. The approach complements existing micro-econometric evidence by aligning short- and mediumterm effects in a unified framework and assessing state dependencies. Liberalising reforms result in temporary wage declines and highly persistent increases in economic activity and employment. In contrast to UB reforms, the effects of EPL reforms on employment emerge only gradually.

Keywords: discriminant regression, employment protection legislation, narrative identification, unemployment benefits

JEL Classification: E32, J08, O43

Suggested Citation

Rünstler, Gerhard, The Macroeconomic Impact of Euro Area Labour Market Reforms: Evidence from a Narrative Panel VAR (October 1, 2021). ECB Working Paper No. 2021/2592, Available at SSRN: https://ssrn.com/abstract=3934740 or http://dx.doi.org/10.2139/ssrn.3934740

Gerhard Rünstler (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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