Quantifying the Impact of Structural Reforms

41 Pages Posted: 22 Aug 2006

See all articles by Ekkehard Ernst

Ekkehard Ernst

International Labour Organization (ILO)

Gang Gong

Tsinghua University - School of Economics & Management; University of Bielefeld

Lina Bukeviciute

European Central Bank (ECB)

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: August 2006

Abstract

We estimate a dynamic intertemporal model with non-clearing markets that mimics features of European labour markets, such as sticky nominal wages and sluggish adjustment of employment to shocks for 15 OECD countries. The estimates include a measure for the degree of labour market sluggishness that compares well with standard indicators of product and labour market regulation. Calibration of the model on a selected country sample confirms its explanatory power in comparison with the standard competitive markets model. In a second step, the measure for labour market sluggishness is used as a policy variable and model variants are simulated in order to assess the extent to which the countries would have performed better with more flexible labour markets. These policy experiments show that an increase in labour market flexibility reduces the volatility of consumption relative to production, improves intertemporal efficiency but entails higher employment risk for households.

Keywords: Nominal and real rigidities, non-clearing labour markets, business cycles, labour market reforms in OECD countries

JEL Classification: E32, C61

Suggested Citation

Ernst, Ekkehard and Gong, Gang and Bukeviciute, Lina and Semmler, Willi, Quantifying the Impact of Structural Reforms (August 2006). ECB Working Paper No. 666. Available at SSRN: https://ssrn.com/abstract=921080

Ekkehard Ernst (Contact Author)

International Labour Organization (ILO) ( email )

Route des Morillons 4
Geneva, 1211
Switzerland
+41 22 799 77 91 (Phone)

Gang Gong

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

University of Bielefeld

Universitätsstraße 25
Bielefeld, NRW
Germany

Lina Bukeviciute

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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