Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects
IMF Working Papers, March 1, 2012
Source details
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- Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects
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Bibliographic details
- Authors: Lorenzo E. Bernal-Verdugo, Davide Furceri, Dominique M. Guillaume
- Published: March 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463938413.001
Aim and methodology
- Aim: analyze the relationship between labor market flexibility and unemployment outcomes.
- Sample and period: panel of 97 countries from 1985 to 2008.
- Outcome variables studied (as described in the source): unemployment, youth unemployment, and long-term unemployment.
Key empirical findings
- Improvements in labor market flexibility have a "statistically and significant negative impact on unemployment outcomes".
- The negative impact applies across:
- unemployment,
- youth unemployment,
- long-term unemployment.
- Among labor market flexibility indicators analyzed, the strongest effects are found for:
- hiring and firing regulations,
- hiring costs.
Policy implications and interpretation
- Policies that increase labor market flexibility—particularly those that address hiring and firing regulations and reduce hiring costs—are associated with lower overall unemployment, lower youth unemployment, and lower long-term unemployment, according to the paper’s results.
- The results suggest prioritizing reforms aimed at easing hiring and firing regulations and lowering hiring costs to improve unemployment outcomes.
Keywords and subjects (as listed)
- Labor market flexibility
- Labor market institutions
- Labor markets
- Unemployment
- Unemployment rate
- Keywords: flexibility indicator, unemployment outcome, WP
Source: Lorenzo E. Bernal-Verdugo, Davide Furceri, Dominique M. Guillaume; March 1, 2012 — IMF Working Paper "Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects".