The Impact of Institutions on the Employment Performance in European Labour Markets

29 Pages Posted: 27 Sep 2005

See all articles by Herbert S. Buscher

Herbert S. Buscher

Halle Institute for Economic Research - Department of Labor Economics

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Raul Ramos

University of Barcelona - AQR; IZA Institute of Labor Economics

Jordi Surinach

Autonomous University of Barcelona - Department of Econometrics, Statistics and Spanish Economy

Date Written: September 2005

Abstract

This paper investigates the role of institutions for labour market performance across European countries. As participation rates have been rather stable over the past, the unemployment problem is mainly caused by shortages in labour demand. Labour demand is expressed by its structural parameters, such as the elasticities of employment to output and factor prices. Institutional variables include employment protection legislation, the structure of wage bargaining, measures describing the tax and transfer system and active labour market policies. As cointegration between employment, output and factor prices is detected, labour demand equations are fitted in levels by efficient estimation techniques. To account for possible structural change, time varying parameter models and aysmmetries due to the business cycle situation are considered. Then, labour demand elasticities are explained by institutions using panel fixed effects regressions. The results suggest that higher flexibility and incentives of households to work appear to be appropriate strategies to improve the employment record. The employment response to economic conditions is stronger in a more deregulated environment, and the absorption of shocks can be relieved. However, the institutional database should be improved in order to arrive at more definite policy conclusions.

Keywords: EU employment, labour market institutions

JEL Classification: E24, J23, J51

Suggested Citation

Buscher, Herbert S. and Dreger, Christian and Ramos, Raul and Surinach, Jordi, The Impact of Institutions on the Employment Performance in European Labour Markets (September 2005). IZA Discussion Paper No. 1732, Available at SSRN: https://ssrn.com/abstract=807429

Herbert S. Buscher

Halle Institute for Economic Research - Department of Labor Economics ( email )

D-06017 Halle
Germany

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Raul Ramos

University of Barcelona - AQR ( email )

Dpt. Econometrics, Statistics and Spanish Economy
Avda. Diagonal 690
Barcelona, Barcelona 08034
Spain

HOME PAGE: http://www.raulramos.cat

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jordi Surinach

Autonomous University of Barcelona - Department of Econometrics, Statistics and Spanish Economy

Av. Diagonal 690
Barcelona, E-08034
Spain

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