The consequences of labor market #exibility: Panel evidence based on survey data

  • Rafael Di Tellaa, Robert MacCullochb
  • Published 2005


We introduce a new data set on hiring and 2ring restrictions for 21 OECD countries for the period 1984–1990. The data are based on surveys of business people in the countries covered, so the indices we use are subjective in nature. Controlling for country and time 2xed e6ects, and using dynamic panel data techniques, we 2nd evidence that increasing the #exibility of the labor market increases both the employment rate and the rate of participation in the labor force. A conservative estimate suggests that if France were to make its labor markets as #exible as those in the US, its employment rate would increase 1.6 percentage points, or 14% of the employment gap between the two countries. The estimated e6ects are larger in the female than in the male labor market, although both groups seem to have similar long-run coe=cients. There is also some evidence that more #exibility leads to lower unemployment rates and to lower rates of long-term unemployment. We also 2nd evidence consistent with the hypothesis that in#exible labor markets produce “jobless recoveries” and introduce more unemployment persistence. c © 2003 Elsevier B.V. All rights reserved. JEL classi#cation: J65

Cite this paper

@inproceedings{Tellaa2005TheCO, title={The consequences of labor market #exibility: Panel evidence based on survey data}, author={Rafael Di Tellaa and Robert MacCullochb}, year={2005} }