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Equilibrium Unemployment Dynamics in a Panel of OECD Countries
Author(s) -
Nymoen Ragnar,
Sparrman Victoria
Publication year - 2015
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12061
Subject(s) - unemployment , economics , panel data , econometrics , estimator , wage , general equilibrium theory , full employment , macroeconomics , labour economics , statistics , mathematics
We focus on the equilibrium unemployment rate as a parameter implied by a dynamic aggregate model of wage and price setting. The equilibrium unemployment rate depends on institutional labour market institutions through mark‐up coefficients. Compared with existing studies, the resulting final equation for unemployment has a richer dynamic structure. The empirical investigation is conducted in a panel data framework and uses OECD data up to 2012. We propose to extend the standard estimation method with time dummies to control and capture the effects of common and national shocks by using impulse indicator saturation (WG‐IIS), which has not been previously used on panel data. WG‐IIS robustifies the estimators of the regression coefficients in the dynamic model, and it affects the estimated equilibrium unemployment rates. We find that wage co‐ordination stands out as the most important institutional variable in our data set, but there is also evidence pointing to the tax wedge and the degree of compensation in the unemployment insurance system as drivers of equilibrium unemployment.