Labour Market Regulation and Youth Unemployment in the EU-28

Italian Economic Journal - Tập 8 Số 1 - Trang 77-103 - 2022
Giorgio Liotti1
1Department of Political Sciences, University of Naples Federico II, Via Rodinò 22, 80133, Naples, Italy

Tóm tắt

AbstractThe rise of youth unemployment has been one of the most serious problems which policymakers have had to deal with over the last two decades. Neoclassical economic theory suggests that the deregulation (i.e. higher flexibility) of the labour market stimulates firms to hire young people and—therefore—reduces youth unemployment. The aim of this study is to empirically test the validity of this hypothesis, analysing data on youth unemployment and labour market regulation index (LMRI) for 28 European countries in the period between 2000 and 2018. The empirical results—using two different econometric techniques (time and fixed effects that allows to take into account the presence of heterogeneity of countries in the model and pooling mean group (PMG) estimator providing results about the short and long run relationship between LMRI and youth unemployment)—do not provide evidence in support of the neoclassical hypothesis. In particular, the effect of higher flexibility of the labour market is negative and statistically significant (at 1%) only when a dummy variable for the Eastern country group is included in the model. Vice-versa, the paper shows that higher economic growth and higher investment in active labour market policy represent the key variables to reduce the youth unemployment. In conclusion, the paper raises many doubts that the introduction of flexibility measures in itself can represent a useful tool to counteract the increase of youth unemployment in Europe.

Từ khóa


Tài liệu tham khảo

Aghion P, Howitt P (1994) Growth and unemployment. Rev Econ Stud 61:477–494. https://doi.org/10.2307/2297900

Akerlof GA (1984) Gift exchange and efficiency-wage theory: four views. Am Econ Rev 74:79–83. https://www.jstor.org/stable/1816334

Akerlof GA, Yellen JL (1986) Efficiency wage models of the labor market. Cambridge University Press, Cambridge. https://doi.org/10.1017/CBO9780511559594

Arestis P, González-Martínez AR (2015) Is Job Insecurity a Driver of the Housing Cycle? Some evidence in the Spanish Case. Panoeconomicus 62:1–14. https://doi.org/10.2298/PAN1501001A

Baker D, Glyn A, Howell D, Schmitt J (2004) Unemployment and labour market institutions: the failure of the empirical case for deregulation. ILO working papers 993741243402676, International Labour Organization

Barbieri P, Scherer S (2009) Labour market flexibilization and its consequences in Italy. Eur Sociol Rev 25:677–692. https://doi.org/10.1093/esr/jcp009

Bassanini A, Duval R (2006) Employment patterns in OECD countries: reassessing the role of policies and institutions. OECD Publishing

Belot M, van Ours JC (2000) Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labour market reform? IZA Discussion Papers 147. Institute of Labor Economics (IZA)

Bernal-Verdugo LE, Furceri D, Guillaume D (2013) Banking crises, labor reforms, and unemployment. J Comp Econ 41:1202–1219. https://doi.org/10.1016/j.jce.2013.03.001

Blackburne EF, Frank MW (2007) Estimation of nonstationary heterogeneous panels. Stand Genomic Sci 7:197–208. https://doi.org/10.1177/1536867X0700700204

Blanchard OJ, Summers LH (1986) Hysteresis and the European Unemployment Problem. National Bureau of Economic Research

Blanchard O, Wolfers J (2000) The Role of shocks and institutions in the rise of European Unemployment: the Aggregate Evidence. Econ J 110:1–33. https://doi.org/10.1111/1468-0297.00518

Blanchard O, Bean C, Münchau W (2006) European unemployment: the evolution of facts and ideas. Econ Policy 21:5–59

Brancaccio E, Garbellini N, Giammetti R (2018) Structural labour market reforms, GDP growth and the functional distribution of income. Struct Chang Econ Dyn 44:34–45. https://doi.org/10.1016/j.strueco.2017.09.001

Bruno GSF, Tanveer MC, Marelli E, Signorelli M (2017) The short- and long-run impacts of financial crises on youth unemployment in OECD countries. Appl Econ 49:3372–3394. https://doi.org/10.1080/00036846.2016.1259753

Calderón C, Chong A (2005) Are labor market regulations an obstacle for long-term growth? In: Central banking, analysis, and economic policies book series: in Restrepo J, Andrea Tokman R, Loayza N (eds) Schmidt-Hebbel K (Series Edi (eds)) Labor Markets and Institutions, vol 8, 1st edn. chapter 6, pp 167–219

Canale RR, Liotti G (2015) Structural adjustment and unemployment in selected eurozone countries. Aust Econ Review 48:113–121. https://doi.org/10.1111/1467-8462.12094

Canale RR, Liotti G, Napolitano O (2014) Structural public balance adjustment effects on growth in 25 OECD countries and the eurozone. Comp Econ Stud 56:635–656. https://doi.org/10.1057/ces.2014.26

Canale RR, Liotti G, Marani U (2019) Structural public balance adjustment and poverty in Europe. Struct Chang Econ Dyn 50:227–236. https://doi.org/10.1016/j.strueco.2019.07.002

Caroleo FE, Rocca A, Mazzocchi P, Quintano C (2020) Being NEET in Europe before and after the economic crisis: an analysis of the micro and macro determinants. Soc Indic Res 149:991–1024. https://doi.org/10.1007/s11205-020-02270-6

Choudhry MT, Marelli E, Signorelli M (2012a) Youth unemployment rate and impact of financial crises. Int J Manpow 33:76–95

Choudry M, Marelli E, Signorelli M (2012b) Key determinants of youth unemployment in OECD countries. AIEL conference 2012

Cirillo V, Fana M, Guarascio D (2017) Labour market reforms in Italy: evaluating the effects of the Jobs Act. Econ Polit 34:211–232. https://doi.org/10.1007/s40888-017-0058-2

Dagsvik JK, Kornstad T, Skjerpen T (2013) Labor force participation and the discouraged worker effect. Empir Econ 45:401–433. https://doi.org/10.1007/s00181-012-0598-9

Dutt AK, Charles S, Lang D (2015) Employment flexibility, dual labour markets, growth, and distribution. Metroeconomica 66:771–807. https://doi.org/10.1111/meca.12093

Eichhorst W, Marx P, Wehner C (2017) Labor market reforms in Europe: towards more flexicure labor markets? J Labour Mark Res 51:3. https://doi.org/10.1186/s12651-017-0231-7

Elmeskov J, Martin JP, Scarpetta S (1999) Key lessons for labour market reforms: evidence from OECD countries’ experience. Social Science Research Network, Rochester

European Commission (2009) Employment in Europe 2009. Brussels

Ferreiro J, Gómez C (2018) Employment protection and labour market performance in European Union countries during the great recession. FMM Working Paper. 31-2018, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Ferreiro J, Gomez C (2019) Employment protection and labor market results in Europe. J Evol Econ. https://doi.org/10.1007/s00191-019-00656-5

Ferreiro J, Serrano F (2013) Labor flexibility, inequality, and financial crisis. J Econ Issues 47:567–574. https://doi.org/10.2753/JEI0021-3624470231

Gujarati D, Porter D, Gunasekar S (2017) Basic econometrics, 5th edn. McGraw Hill education

Hopenhayn H, Rogerson R (1993) Job turnover and policy evaluation: a general equilibrium analysis. J Polit Econ 101:915–938

ILO (2009) Key indicators of youth unemployment markets: Concepts, definitions and tabulations. https://www.ilo.org/wcmsp5/groups/public/---dgreports/---stat/documents/publication/wcms_498929.pdf

IMF (2003) World economic outlook, April 2003: growth and institutions. https://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Growth-and-Institutions

Jha P, Golder S (2008) Labour market regulation and economic performance: A critical review of arguments and some plausible lessons for India. ILO 1–76. https://www.ilo.org/empelm/pubs/WCMS_113926/lang--en/index.htm

Kleinknecht A (1998) Is labour market flexibility harmful to innovation? Camb J Econ 22:387–396

Layard R, Nickell S, Jackman R (1991) Unemployment: macroeconomic performance and the labour market. Oxford University Press, Oxford

Lazear EP (1990) Job security provisions and employment. Q J Econ 105:699–726. https://doi.org/10.2307/2937895

Lee J (2000) The robustness of Okun’s law: Evidence from OECD countries. J Macroecon 22:331–356. https://doi.org/10.1016/S0164-0704(00)00135-X

Lindbeck A, Snower DJ (1988) Cooperation, harassment, and involuntary unemployment: an insider-outsider approach. Am Econ Rev 78:167–188

Liotti G (2020) Labour market flexibility, economic crisis and youth unemployment in Italy. Struct Chang Econ Dyn 54:150–162. https://doi.org/10.1016/j.strueco.2020.04.011

Lucifora C, McKnight A, Salverda W (2005) Low-wage employment in Europe: a review of the evidence. Socioecon Rev 3:259–292. https://doi.org/10.1093/SER/mwi011

Martin JP (2014) Activation and active labour market policies in OECD countries: stylized facts and evidence on their effectiveness. Institute of Labor Economics (IZA). https://www.iza.org/publications/pp/84/activation-and-active-labour-market-policies-in-oecd-countries-stylized-facts-and-evidence-on-their-effectiveness

Montenegro CE, Pages C (2003) Who benefits from labor market regulations? Chile 1960-1998. The World Bank. https://openknowledge.worldbank.org/handle/10986/18044

Moreira A, Domínguez ÁA, Antunes C et al (2015) Austerity-Driven Labour market reforms in Southern Europe: eroding the security of labour market insiders. Eur J Soc Secur 17:202–225. https://doi.org/10.1177/138826271501700204

Nickell S (1998) Unemployment: questions and some answers. Econ J 108:802–816. https://doi.org/10.1111/1468-0297.00316

Nickell S, Layard R (1999) Labor market institutions and economic performance. Elsevier, Amsterdam

Nickell S, Nunziata L, Ochel W (2005) Unemployment in the OECD since the 1960s. What Do We Know? Econ J 115:1–27

O’Higgins N (1997) The challenge of youth unemployment. Int Soc Secur Rev 50:63–93. https://doi.org/10.1111/j.1468-246X.1997.tb01084.x

O’Higgins N (2012) This time it‘s different? Youth labour markets during ‘The Great Recession.’ IZA DP No. 6434. http://ftp.iza.org/dp6434.pdf

O’Higgins N, Moscariello V (2017) Labour market institutions and youth labour markets: minimum wages and youth employment. ILO working paper No. 223. https://www.ilo.org/wcmsp5/groups/public/---ed_emp/documents/publication/wcms_575897.pdf

OECD (1994) OECD Jobs study, evidence and explanations, Part I: Labor market trends and underlying forces of change. Part II: The adjustment potential of the labor market. Paris. https://www.oecd.org/els/emp/1941679.pdf

Pesaran MH, Smith R (1995) Estimating long-run relationships from dynamic heterogeneous panels. J Econom 68:79–113. https://doi.org/10.1016/0304-4076(94)01644-F

Pissarides C, McMaster I (1990) Regional migration, wages and unemployment: empirical evidence and implications for policy. Oxf Econ Pap 42:812–831

Posner PW (2017) Labour market flexibility, employment and inequality: lessons from Chile. New Polit Econ 22:237–256. https://doi.org/10.1080/13563467.2016.1216534

Reinhart CM, Rogoff KS (2010) Growth in a time of debt. Am Econ Rev 100:573–578. https://doi.org/10.1257/aer.100.2.573

Scarpetta S (1996) Assessing the role of labour market policies and institutional settings on unemployment: a cross-country study. OECD Econ Stud 26:43–98

Schubert SF, Turnovsky SJ (2018) Growth and unemployment: Short-run and long-run tradeoffs. J Econ Dyn Control 91:172–189. https://doi.org/10.1016/j.jedc.2017.11.003

Tridico P (2018) The determinants of income inequality in OECD countries. Camb J Econ 42:1009–1042. https://doi.org/10.1093/cje/bex069

Walwei U (1996) Is greater flexibility in the labour market the answer to the unemployment crisis? Intereconomics 31:159–165. https://doi.org/10.1007/BF02928598

Wooldridge JM (2019) Introductory econometrics: a modern approach, 7th edn. South-Western Pub, Boston

Yellen JL (1984) Efficiency wage models of unemployment. Am Econ Rev 74:200–205

Zemanek H (2010) Competitiveness within the euro area: the problem that still needs to be solved. Econ Aff 30:42–47. https://doi.org/10.1111/j.1468-0270.2010.02020.x