Labour Market Institutions and the Cyclical Dynamics of Employment

We present an empirical analysis of the effects of labour market institutions on the employment dynamics over the cycle. In the first part of the paper a theoretical framework is provided with particular emphasis on working time regulations. The conclusions of the theory are tested in the second part on a sample of 20 OECD countries observed over the period 1975-1997. The empirical analysis is focused one expansions, contractions and different expansion segments. The claims of the theory are confirmed and a measure of the influence of labour market institutions on the employment responsiveness to the business cycle is provided through simulations.