Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms?

Abstract

In recent years some OECD countries were successful in lowering the unemployment rate substantially while other countries were not. In this paper we investigate to what extent successful countries implemented a comprehensive set of institutional reforms. We present a theoretical framework to investigate the relationship between unemployment and labor market institutions (LMI) such as labor taxes, unemployment benefits, employment protection, union bargaining power and (de)centralization of bargaining. In our empirical analysis of data over the period 1960--99 of 17 OECD countries we show that particular combinations of LMI are responsible for low unemployment rates. Copyright 2004, Oxford University Press.