Can Institutional Reform Reduce Job Destruction and Unemployment Duration? Yes it Can

February 1, 2012

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Format: Chicago

. Esther Perez Ruiz, and Yao Yao. Can Institutional Reform Reduce Job Destruction and Unemployment Duration? Yes it Can, (USA: International Monetary Fund, 2012) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We read search theory's unemployment equilibrium condition as an Iso-Unemployment Curve(IUC).The IUC is the locus of job destruction rates and expected unemployment durations rendering the same unemployment level. A country's position along the curve reveals its preferences over the destruction-duration mix, while its distance from the origin indicates the unemployment level at which such preferences are satisfied Using a panel of 20 OECD countries over 1985-2008, we find employment protection legislation to have opposing efects on destructions and durations, while the effects of the remaining key institutional factors on both variables tend to reinforce each other. Implementing the right reforms could reduce job destruction rates by about 0.05 to 0.25 percentage points and shorten unemployment spells by around 10 to 60 days. Consistent with this, unemployment rates would decline by between 0.75 and 5.5 percentage points, depending on a country's starting position.

Subject: Job creation, Job destruction, Labor, Labor markets, Unemployment, Unemployment rate

Keywords: Destruction rate, Hazard rate, Inflow rate, Job creation, Job destruction, Labor market institutions, Labor markets, North America, OECD labor market policies database, Replacement rate, Search model, Unemployment, Unemployment duration, Unemployment inflows, Unemployment rate, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/054
Stock No:

WPIEA2012054
ISBN:

9781463937140
ISSN:

1018-5941

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