Labour Market Institutions and Unemployment:Does Finance Matter?

We explore whether finance influences the impact of labour market institutions onunemployment. Using a data set of 18 OECD countries over 1980-2004, we estimate a panelVectorAutoRegressive model. We check whether causalities from labour market variables tounemployment are affected by financial factors. In Belgium, Italy, Australia, Japan and Spain,accounting for financial indicators mitigates the benefits of labour market flexibilization ormakes it harmful to employment. In Austria, Canada, Finland and Portugal, it reduces itsdetrimental impact or makes it beneficial. In Ireland and Netherlands, both effects prevail,depending on the labour market indicator used....