Why Labour Market Response Differed in the Great Recession: The Impact of Institutions and Policy

This paper investigates the performance of labour markets during the recent crisis for 28 industrialised countries, specifically the reaction of employment and unemployment indicators relative to output changes. We construct a composite indicator for output as well as labour market performance. The determinants of cross-country differences we chose are regulation, flexicurity elements and contracts. We find a robust positive impact of labour market regulation, while the impacts of flexicurity strategies and contracts are difficult to pin down econometrically. Finally we venture a tentative look at the ongoing recovery.