The Determinants of Labor Market Institutions: A Panel Data Study

This paper analyzes the argument that labor market institutions can be thought of devices for social insurance. It investigates the hypotheses that a country’s exposure to external risk and ethnic fractionalization are correlated with labor market institutions. Extreme bounds analysis with the panel data of 40 years indicates that there is no robust evidence of positive correlation between external risk and the structure of labor market institutions, while ethnic fractionalization is robust negatively correlated with the institutions.