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How Do Policies Affect the Exit Rate out of Unemployment? Disentangling Job Creation from Labour Market Frictions

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  • Fabrice Murtin
  • Alain Serres

Abstract

This paper assesses the effects of labour market policies on the unemployment outflow rate while disentangling two channels, namely labour market tightness and employer–employee matching efficiency. Using a sample of 11 OECD countries over the period 1985–2007, we treat the endogeneity of market tightness with business cycle shocks and the tax wedge as instruments. We find that the replacement rate of unemployment benefits, Active Labour Market Policies as well as the tax wedge in countries with poorly representative unions, have a significant, robust, and large impact on market tightness. Employment protection has a negative but small impact on matching efficiency. Overall, policy effects appear to be mostly channeled through market tightness and job creation.

Suggested Citation

  • Fabrice Murtin & Alain Serres, 2014. "How Do Policies Affect the Exit Rate out of Unemployment? Disentangling Job Creation from Labour Market Frictions," LABOUR, CEIS, vol. 28(2), pages 190-208, June.
    • Handle: RePEc:bla:labour:v:28:y:2014:i:2:p:190-208
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    Cited by:

    1. Verónica Escudero, 2018. "Are active labour market policies effective in activating and integrating low-skilled individuals? An international comparison," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-26, December.
    2. Pignatti Clemente & Van Belle Eva, 2021. "Better together: Active and passive labor market policies in developed and developing economies," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 12(1), pages 1-27, January.
    3. Murtin, Fabrice & Robin, Jean-Marc, 2018. "Labor market reforms and unemployment dynamics," Labour Economics, Elsevier, vol. 50(C), pages 3-19.
    4. repec:spo:wpmain:info:hdl:2441/1avjr94u1u9dkqrhs6u825vpp4 is not listed on IDEAS
    5. Murtin, Fabrice & Robin, Jean-Marc, 2018. "Labor market reforms and unemployment dynamics," Labour Economics, Elsevier, vol. 50(C), pages 3-19.
    6. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    7. repec:hal:spmain:info:hdl:2441/1avjr94u1u9dkqrhs6u825vpp4 is not listed on IDEAS

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    More about this item

    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
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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