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

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