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Divergence in Labor Market Institutions and International Business Cycles

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  • Raquel Fonseca
  • Lise Patureau
  • Thepthida Sopraseuth

Abstract

The paper investigates the international GDP synchronization within the international real business cycle framework (Backus, Kehoe and Kydland, 1992). It sheds new light on the comovement issue by highlighting the role of cross-country divergence in labor market institutions (LMIs). We first document the empirical link between labor market heterogeneity and GDP comovement in a sample of 15 OECD countries over the recent period. Labor market heterogeneity significantly reduces cross-country GDP correlation. Besides, the effects are non-trivial, as they are found to depend on the design of LMIs. We then investigate this stylized fact within the two-country RBC model with labor-market frictions à la Pissarides (1990), that we amend to take into account asymmetric LMIs. The model rationalizes the link between labor market heterogeneity and GDP comovement observed in the data. Our results show that taking into account the design of LMIs among OECD countries improves our understanding of their business cycle comovement.

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  • Raquel Fonseca & Lise Patureau & Thepthida Sopraseuth, 2009. "Divergence in Labor Market Institutions and International Business Cycles," Annals of Economics and Statistics, GENES, issue 95-96, pages 279-314.
    • Handle: RePEc:adr:anecst:y:2009:i:95-96:p:279-314
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    4. Vadim Kufenko & Niels Geiger, 2017. "Stylized Facts of the Business Cycle: Universal Phenomenon, or Institutionally Determined?," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(2), pages 165-187, November.
    5. Busl, Claudia & Seymen, Atılım, 2013. "The German labour market reforms in a European context: A DSGE analysis," ZEW Discussion Papers 13-097, ZEW - Leibniz Centre for European Economic Research.
    6. Claudia Busl & Atilim Seymen, 2013. "(Spillover) Effects of Labour Market Reforms in Germany and France. WWWforEurope Working Paper No. 8," WIFO Studies, WIFO, number 46855, March.

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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