Identifying asymmetric effects of labor market reforms

Britta Gehrke (IAB and Friedrich-Alexander Universität Erlangen-Nürnberg), Enzo Weber (IAB und Universität Regensburg)

This paper investigates whether the effects of structural labor market reforms depend on the business cycle. Based on search and matching theory, we propose an unobserved components approach with Markov switching to distinguish the effects of structural reforms that increase the flexibility of the labor market in recession and expansion. Our results for Germany and Spain show that reforms have substantially weaker expansionary effects in the short-run when implemented in recessions. In consequence, reforms are unlikely to mitigate the impact of crisis in the short-run. From a policy perspective, these results highlight the costs of introducing reforms in recessions.

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Year of publication:	August 1, 2017
Authors:	Gehrke, Britta ; Weber, Enzo
Publisher:	Nuremberg : Institute for Employment Research of the Federal Employment Agency
Subject:	labor market reforms \| search and matching \| business cycle asymmetries \| Markov switching \| Konjunktur \| Business cycle \| Arbeitsmarktpolitik \| Labour market policy \| Matching \| Markov-Kette \| Markov chain \| Arbeitsmarkt \| Labour market \| Reform \| Arbeitsmarktflexibilität \| Labour market flexibility \| Suchtheorie \| Search theory \| Schätzung \| Estimation \| Wirkungsanalyse \| Impact assessment \| Arbeitsmarktreform \| Labour market reform