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Institutions and unemployment: Do interactions matter?

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  • Sachs, Andreas

Abstract

Isolated effects of labor and product market institutions as well as the interaction between both aforementioned categories on unemployment have been extensively discussed in the empirical literature. However, interaction effects between individual labor market institutions have been widely neglected, mainly due to the infeasibility to correctly specify the model. In this paper, a model averaging approach is adopted to show that considering institutional interactions can improve the explanatory power of macroeconomic models explaining unemployment. The approach permits to tackle model specification problems directly related to the inclusion of a large number of interactions. Using a panel data set for 17 OECD countries from 1982 to 2005, 22 robust and significant interactions can be identified. Furthermore, country-specific marginal effects of institutional changes are calculated and their economic significance is analyzed for selected countries.

Suggested Citation

  • Sachs, Andreas, 2011. "Institutions and unemployment: Do interactions matter?," ZEW Discussion Papers 11-057, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:11057
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    References listed on IDEAS

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    Cited by:

    1. Andreas Sachs & Frauke Schleer, 2013. "Labour Market Performance in OECD Countries: A Comprehensive Empirical Modelling Approach of Institutional Interdependencies. WWWforEurope Working Paper No. 7," WIFO Studies, WIFO, number 46851, January.
    2. Sachs, Andreas & Schleer, Frauke, 2013. "Labour market performance in OECD countries: A comprehensive empirical modelling approach of institutional interdependencies," ZEW Discussion Papers 13-040, ZEW - Leibniz Centre for European Economic Research.
    3. O'Higgins, Niall, 2012. "This Time It's Different? Youth Labour Markets During 'The Great Recession'," IZA Discussion Papers 6434, Institute of Labor Economics (IZA).
    4. Sachs, Andreas, 2011. "Über die Wechselbeziehung von Arbeitsmarktinstitutionen," ZEW Wachstums- und Konjunkturanalysen, ZEW - Leibniz Centre for European Economic Research, vol. 14(3), pages 8-9.

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    More about this item

    Keywords

    Unemployment; Institutions; Labor and Product Markets; Model Averaging; Institutional Interactions; Institutional Design;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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