Employment to Output Elasticities & Reforms towards Flexicurity:  Evidence from OECD Countries

Holger Görg, Cecília Hornok, Catia Montagna, George E. Onwordi

Research output: Working paperDiscussion paper

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Abstract

Labour market reforms in the direction of ’flexicurity’ have been widely endorsed as a means to increase an economy’s ability to adjust to negative shocks while offering adequate social safety nets. This paper empirically examines how such reforms influence employment’s responsiveness to output fluctuations (employment-output elasticity). To address this question, we employ a single
equation error correction model with policy interactions on a panel of OECD countries, which also incorporates the period of the Great Recession, and distinguish between passive and active labour market policy types. Flexicurity is represented by three policy measures: unemployment benefit generosity, the flexibility of hiring and firing rules, and spending on active labour market policies. We find that the effects of any single policy change are shaped by the broader existing policy mix within which it takes place. A hypothetical flexicurity reform towards the policy mix of Denmark, a well-known example of the flexicurity regime, is found to increase or leave unchanged countries’ short-run employment-output elasticities, depending on the initial policy mix. These results are robust to accounting for a large set of additional labour market institutions.
Original languageEnglish
PublisherUniversity of Aberdeen
Pages1-48
Number of pages48
Volume22
Publication statusPublished - 16 Sept 2022

Publication series

NameDiscussion Papers in Economics and Finance
No.4
Volume22
ISSN (Electronic)0143-4543

Keywords

  • employment-output elasticity
  • labour market policy
  • Welfare state
  • flexicurity

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