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Unemployment at risk: the policy determinants of labour market exposure to economic shocks

Author

Listed:
  • Alain de Serres

    (Economics department - MIT - Massachusetts Institute of Technology)

  • Fabrice Murtin

    (Economics department - MIT - Massachusetts Institute of Technology)

Abstract

This paper examines the vulnerability of labour markets to adverse economic shocks. We define labour market exposure as the cumulated amount of excess unemployment generated by a shock before unemployment returns to steady-state. We use a panel of 19 countries covering the period 1985–2010 to assess the influence of labour market policies on labour market exposure, which is also calculated country by country. We find that less generous unemployment insurance, more active labour market policies or a lower minimum wage imply a trade-off between average unemployment and labour market exposure, as they help low-skilled workers to get out of unemployment at the cost of increased vulnerability to adverse shocks. On the other hand, reducing the tax wedge is conducive to both lower steady-state unemployment and labour market exposure.

Suggested Citation

  • Alain de Serres & Fabrice Murtin, 2014. "Unemployment at risk: the policy determinants of labour market exposure to economic shocks," Post-Print hal-03460398, HAL.
    • Handle: RePEc:hal:journl:hal-03460398
    DOI: 10.1111/1468-0327.12038
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03460398
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    4. Görg, Holger & Henze, Philipp & Jienwatcharamongkhol, Viroj & Kopasker, Daniel & Molana, Hassan & Montagna, Catia & Sjöholm, Fredrik, 2017. "Firm size distribution and employment fluctuations: Theory and evidence," Research in Economics, Elsevier, vol. 71(4), pages 690-703.
    5. Michael MITSOPOULOS & Theodore PELAGIDIS, 2021. "Labor Taxation And Investment In Developed Countries. The Impact On Employment," Regional Science Inquiry, Hellenic Association of Regional Scientists, vol. 0(2), pages 13-31, June.
    6. Andrews Dan & Ferrari Irene & Saia Alessandro, 2019. "The Costs of Firm Exit and Labour Market Policies: New Evidence from Europe," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-24, January.
    7. Roeger, Werner & Varga, Janos & Veld, Jan in 't & Vogel, Lukas, 2021. "The distributional impact of labour market reforms: A model-based assessment," European Economic Review, Elsevier, vol. 131(C).
    8. Andrea Garnero, 2021. "The impact of collective bargaining on employment and wage inequality: Evidence from a new taxonomy of bargaining systems," European Journal of Industrial Relations, , vol. 27(2), pages 185-202, June.
    9. Marwa Sahnoun & Chokri Abdennadher, 2018. "The assessment of active labor market policies: evidence from OECD countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(2), pages 257-283, August.
    10. Chletsos, Michael & Sintos, Andreas, 2023. "The effects of IMF conditional programs on the unemployment rate," European Journal of Political Economy, Elsevier, vol. 76(C).
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