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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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
Number of pages48
Publication statusPublished - 16 Sept 2022

Publication series

NameDiscussion Papers in Economics and Finance
ISSN (Electronic)0143-4543

Bibliographical note

This work was supported by the NORFACE ERA-NET (New Opportunities for Research Funding Agency Cooperation in Europe Network) Welfare State Futures Programme, Grant Number 462-14-120. We thank Nils Braakmann, Sebastian Könings, Steve Matusz, Fredrik Sjöholm, John Skåtun, Allan Sørensen, participants of the NORFACE Welfare State Futures Programme “Globalisation, Labour Markets and the Welfare State” final workshop and two anonymous referees for their valuable comments.


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


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