Labor Market Flexibility and Unemployment: New Empirical Evidence of Static and Dynamic Effects

an article by Lorenzo E Bernal-Verdugo (University of Chicago, USA), Davide Furceri (International Monetary Fund and University of Palermo) and Dominique Guillaume (International Monetary Fund) published in Comparative Economic Studies Volume 54 Issue 2 (June 2012)

Abstract

The aim of this paper is to analyze the relationship between labor market flexibility and unemployment outcomes.

Using a panel of 97 countries from 1985 to 2008, the results of the paper suggest that improvements in labor market flexibility have a statistically and significant negative impact on unemployment outcomes (over unemployment, youth unemployment, and long-term unemployment).

Among the different labor market flexibility indicators analyzed, hiring and firing regulations and hiring costs are found to have the strongest effect.

JEL Classifications: D7; E29; E32; J60

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