EMPLOYMENT PROTECTION AND THE NON-LINEAR RELATIONSHIP BETWEEN THE WAGE-PRODUCTIVITY GAP AND UNEMPLOYMENT

ABSTRACT This paper studies the relationship between the wage‐productivity gap and the unemployment rate in OECD countries between 1985 and 2007. In particular, we investigate whether differences in the employment protection across countries affect the link between these two variables. We show that...

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Bibliographic Details
Published in:Scottish journal of political economy 2011-05, Vol.58 (2), p.200-220
Main Authors: López-Villavicencio, Antonia, Silva, José Ignacio
Format: Article
Language:English
Subjects:
Economic theory
Employment
Global economy
Institutions
International
Labor economics
Labor law
Labor Market
Labour economics
Labour market
Labour productivity
Legislation
Manycountries
Non-linear models
OECD
Political economy
Productivity
Reform
Regulation
Social security
Studies
Unemployment
Unemployment Rates
Wage differential
Wage-employment relationship
Wages & salaries
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Summary:ABSTRACT This paper studies the relationship between the wage‐productivity gap and the unemployment rate in OECD countries between 1985 and 2007. In particular, we investigate whether differences in the employment protection across countries affect the link between these two variables. We show that the elasticity of unemployment with respect to the wage‐productivity gap is non‐linear and that it switches from a positive to a negative value with stricter employment legislation. From a theoretical point of view, we argue that this result is related to a set of labor market reforms introduced in many OECD countries, which affected the relative strictness of institutions.
ISSN:0036-9292
1467-9485
DOI:10.1111/j.1467-9485.2011.00543.x