Aggregate Earnings and Macroeconomic Shocks: the Role of Labour Market Policies and Institutions

Abstract

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Economic Resilience: What Role for Policies?

“…The evidence is, however, inconclusive in this respect. Bassanini (2012) finds that high minimum wages mitigate the impact of macroeconomic shocks on the cyclicality of wages; however, he finds no effect on total earnings and no effect on the persistency of shocks. On the other hand, Ahrend et al (2011) find that high and, especially, far reaching statutory minimum wages have had adverse impacts on youth employment and youth unemployment in the wake of numerous macroeconomic shocks.…”

“…At the macro level, there is indeed evidence that generous unemployment benefits increase the persistence of unemployment following an economic downturn (OECD, 2012). Bassanini (2012) further finds that generous unemployment benefits amplify the negative effects of macroeconomic shocks on total labor earnings. Generous benefits would lead to higher unemployment spells putting pressure on employment and wages and negatively impacting earnings.…”

“…In the face of negative shocks, employment adjustment is likely to be larger when wages are rigid downwards, which is often the case, at least for the nominal wages of incumbents (Bassanini, 2012). Labor market institutions -notably wage bargaining and EPL -are typically considered to explain cross-country differences in wage rigidity patterns (Bertola and Rogerson, 1997;Babecký et al, 2009).…”

Protecting jobs, enhancing flexibility: A new look at employment protection legislation

“…Recent OECD work, identifying the effect of dismissal restrictions on employment through the likely heterogeneity of its effects across industries or firm types, find that these regulations reduce employment resilience to output shocks (e.g. OECD, 2011a; Bassanini, 2012), which helps explaining the limited employment elasticity of the recent recession (Gal et al, 2012;OECD, 2012a).…”

Economic resilience: what role for policies?

“…At the macro level, there is indeed evidence that generous unemployment benefits increase the persistence of unemployment following an economic downturn (OECD, 2012). Bassanini (2012) further finds that generous unemployment benefits amplify the negative effects of macroeconomic shocks on total labour earnings. Generous benefits would lead to higher unemployment spells putting pressure on employment and wages and negatively impacting earnings.…”