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Contents
1 2 3 4 Introduction Literature Review Data and Methodology Results 4.1 Comparisons across countries . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1.1 4.2 Country groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 6 7 7 8 9
Temporary workers . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Decline of unionization rate . . . . . . . . . . . . . . . . . . . . . . . 11 Sectoral shift from manufacturing to services . . . . . . . . . . . . . 13 Labor market conclusions . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 5 6
Introduction
Business cycle statistics in the United States have changed considerably over the past 30 years. Three developments in particular have captured the attention of the economics profession: (i) a sign shift in the unconditional correlation between productivity and unemployment, (ii) a decrease in the procyclicality of productivity and (iii) an increase in the volatility of employment and hours relative to output, and the decline in volatility of other macroeconomic series, known as the Great Moderation. While separate theories have been proposed to explain these shifts, structural changes in the labor market are a common theme. For example, Gali and van Rens (2010) point to authors who argue that the Great Moderation may have been driven at least in part by increased wage exibility.1 Both Gali and van Rens (2010) and Barnichon (2010) nd that the shifts in correlation and procyclicality can be explained in part by a reduction in labor market frictions. Gali and van Rens (2010) nd a common thread in their paper by using a structural model to show how a reduction in labor market frictions can increase wage exibility, nding evidence to link all three developments to the labor market. However, these business cycle developments have been documented for US only. The scope of this paper is to investigate the cross-country heterogeneity in these business cycle moments in order to assess whether the facts emphasized by Gali and van Rens (2010) and Barnichon (2010) are global phenomena, or limited to the case of US. We focus on the unconditional sample moments for the cyclical component of key macroeconomic variables across 10 OECD countries (including the United States, for comparison purposes). Furthermore, we consider if the theories proposed to explain these facts, which t well with developments in the US economy, are relevant for other OECD countries. More specically, in the rst part of the analysis we assess the evolution of the
1 See
Gourio (2007), Champagne and Kurmann (2010), Nucci and Riggi (2009)
correlation between productivity and unemployment in order to uncover any similarities across countries and form groups. Thereafter, we focus on the group that includes US and consider whether the explanations based on labor market exibility are supported by empirical evidence, i.e. whether countries that belong to the same group had similar developments related to the degree of labor market rigidities. Finally, we analyze additional business cycle statistics, such as the cyclicality of labor productivity and the volatilities of macroeconomic series, in order to determine whether the three developments listed above are consistent and reect the characteristics of the labor market within our group of interest. Our paper nds a substantial degree of heterogeneity in the patters of correlations between labor productivity and unemployment across OECD economies. A few countries, such as Canada and Finland, display unique patterns, while the others can be grouped according to the sign of the correlation or the timing of the sign switch. Surprisingly, we nd that the countries most comparable to the US are Italy and Norway. By proling the labor markets of the United States and Italy, we cast doubt on the ability of the labor market to account for the correlation of productivity with unemployment and output, but nd evidence that the evolutions on the labor markets are consistent with the vanishing procyclicality of productivity. First we place our paper in the literature, and discuss the outcomes of previous studies into the Great Moderation and additional business cycle developments. Thereafter we present the data and our methodology. We then focus on our results and a discussion of labor market characteristics in the United States and Italy from the 1970s. Finally, we conclude.
Literature Review
The studies that document the three business cycle developments considered above point towards two main explanations. The rst one is related to a change in the relative importance between technology shocks and non-technology shocks and the second one is represented by the decrease in the rigidities on the labor market. We further discuss in detail the theories presented in the literature and the basic mechanisms that account for these changes. Barnichon (2010) documents a sign switch of the correlation between unemployment and productivity in the mid 80s and estimates a VAR in order to trace the impact of a technology and non-technology shock on these two variables. Based on the empirical evidence, he points towards two main explanations for the sign switch. First, since a positive technology shock leads to a positive correlation between the variables, while a non-technology shock generates a negative one, the sign shift could be explained by a change in the relative size of the shocks. Second, the evidence indicates a decrease in the pro-cyclicality of productivity after the mid 80s based on structural changes in the labor market. Barnichon (2010) provides a structural interpretation using a New-Keynesian model with sticky prices, search and matching frictions and variable labor effort. In this context, a non-technology shock is interpreted as an aggregate demand shock that determines rms to raise the labor input in order to be able to satisfy the increase in demand. Since employment cannot be adjusted immediately due to hiring costs, rms increase hours and effort leading to a rise in productivity. However, the use of the intensive margin is limited because the disutility of workers increases in hours and effort, therefore rms will start to post vacancies and unemployment will decrease. This is the mechanism through which a positive non-technology shock leads to a negative productivity-
unemployment correlation. In contrast, a positive technology shock generates an increase in productivity, which leads rms to lower hours and effort initially, because employment is subject to frictions and hence they face ring costs. This reduction leads to a decrease in the value of a marginal worker and therefore rms will post fewer vacancies and unemployment will increase. As a consequence, a technology shock leads to a positive productivityunemployment correlation. In line with this evidence, the two events that explain the correlation sign switch are an increase in the size of technology shocks relative to other types of shocks and a decline in the response of productivity to non-technology shocks after the mid 80s. In the model, the declining procyclicality of productivity is explained through a more exible labor market due to smaller hiring frictions and an increased elasticity of hours per worker. The empirical evidence that could support these developments consists of a rising share of temporary workers, a decline in the unionization rate and the emergence of online recruitment sites in the last two decades. The results of the model indicate that about 40% of the increase in the correlation is due to changes in the sizes of the shocks and approximately 60% can be associated with the structural changes. Our purpose is to analyze whether these facts are valid for all the countries where the switch in the sign of the correlation took place and therefore determine whether they provide a comprehensive explanation or the evidence can be extended by considering other factors. Gali and Gambetti (2008) estimate a structural time varying VAR on output, hours and labor productivity and nd evidence for a decline in the cyclical response of labor productivity to non-technology shocks. Furthermore, the authors document a drop in the correlation between total hours worked and productivity conditional on nontechnology shocks. 4
The potential explanation for these ndings could be related to the variations in effort that take place due to the high adjustments costs in employment. Since it is costly to hire or re new people when faced with uctuations in demand, variations in effort represent a tool for the rms to easily adjust effective labor input. In this context, the measured hours uctuate less than their effective counterpart and therefore labor productivity will tend to be procyclical. An increase in the exibility of the labor markets leads to a decrease in the variations in effort and would therefore explain a decline in the procyclicality of labor productivity following an aggregate demand shock. These changes in conditional moments are synchronized with the decline in output volatility from the early 1980s, however it has not been established whether they share a common explanation based on structural modications in the labor market. On the basis of a similar explanation related to a reduction in hiring costs, Gali and van Rens (2010) also nd evidence for a vanishing procyclicality of labor productivity and a relative increase in the volatility of employment and the real wage with respect to output. The mechanism is illustrated through a model with labor market frictions, variable effort, and endogenous wage rigidities in which effort is considered as a factor input which is not subject to rigidities and can partly substitute labor. Since frictions on the labor market create difculties in adjusting employment, a reduction in frictions leads to a drop in the volatility of this input and an increase in the one of employment relative to output. Hence, the procyclicality of productivity is inuenced by variations in effort. The present study focuses on providing empirical evidence for the explanation based on an increased exibility in the labor markets and we leave for future research the consideration of the relative importance of the technology and aggregate demand shocks.
Our analysis is based on the following macroeconomic time series at the individual country level: real GDP, average hours per worker, employment, unemployment and productivity. We consider quarterly, seasonally-adjusted data for the period 1970Q12011Q42 for Australia, Canada, Finland, France, Italy, Japan, Norway, Sweden, United Kingdom and the United States. There is extensive research related to business cycle developments in the United States, and we include it as a benchmark with which to compare other OECD countries. The main data source is the OECD, although some OECD series were extracted from the FRED database of the St. Louis Federal Reserve Bank. To prole the labor markets in our countries of interest, we focus explicitly on temporary workers, unionization rates and sectoral shifts from manufacturing to services. The main source of this indicators is the CEP-OECD Institutions Data Set (See Nickell (2006)). Following Barnichon (2010), all series were de-trended with the HP-lter and a smoothing parameter of 16003 and our calculations are performed on the deviations of each series from its trend. Labor productivity is based on our own calculations, and is computed as real GDP divided by the total hours worked. The correlation of productivity with unemployment and with output, and the volatilities of relevant times series are computed as 10 year rolling windows over the sample.
Finland 1970:Q1-2010:Q4; UK 1972:Q1-2011:Q4 results are robust when data is transformed with the fourth-difference operator used in Stock and Watson (2002). See the Appendix, section 6.1
3 Our 2 Exceptions:
Results
In the rst part of the analysis we present our results regarding the patterns of correlations between unemployment and labor productivity for each country. Thereafter we propose a grouping based on similarities regarding the signs and breaks. In the second part of the analysis we zoom in on the group of countries that includes US in order to make a a brief and qualitative assessment of whether explanations based on the labor market, as cited in Barnichon (2010) and Gali and van Rens (2010), are consistent with the empirical facts in each country. Furthermore, we enrich our analysis by examining the volatility of employment and hours relative to output and the procyclicality of productivity for the selected group of countries.
4.1
The most striking result from our analysis is the parallel sign shifts experienced by the United States and Italy (See gures 3,6-7 in the Appendix, section 6.2). The rst significant break in the data occurs for both countries in the mid-1980s, when the correlation became signicantly positive. After 1993, both countries display a second break, and the correlation becomes zero for the United States and signicantly negative for Italy. Norway experiences a signicant sign shift slightly later than the US and Italy. It breaks from a zero correlation in the beginning of the sample to signicantly positive starting in the late 1980s. New Zealand, Sweden, UK and Australia display a switch in correlation in the late 70s. Previously, the correlation for New Zealand and Sweden was negative, while in the UK and Australia the correlation was not signicantly different from zero. In the late 70s, the correlations become positive for New Zealand, Sweden and Australia, but the positive correlation is not signicant over the full length of the sample. The correlation 7
became negative for the UK in the late 90s, although not signicantly different from zero. The correlations for France and Japan are signicantly negative after the 1980s and do not display any switch in the sign (gure 8). In both countries there are brief periods in which the correlation is not signicantly different from zero. Canada is the only country for which the switch in correlation is from positive to negative (See gure 1). The date of this change is in the rst quarter of 1983 and is characterized by a trend instead of a sharp break. The correlation for Finland is not statistically different from zero along the entire sample (gure 9). Italy, Norway and the US are the only countries that exhibit sharp breaks over the sample period. In the case of Australia, Canada, Finland, France, Japan, New Zealand, Sweden and the UK, the correlation is relatively smooth. The evolution of the correlation in each individual country can be seen in gures 1-6 in the Appendix, section 6.2.
4.1.1
Country groups
While some countries display similar traits to the United States over the period of investigation, we also nd signicant heterogeneity in both the sign of the correlation and the approximate date of the shift. Furthermore, some countries displayed a sharp break, and for others the sign shift was characterized by a trend instead of a sharp break. We classify the countries according to i) the presence of a sign shift, ii) the approximate date of the shift and iii) the shape of correlation over time.
1) United States, Italy and Norway 2) UK, Sweden, New Zealand, Australia 3) France and Japan 8
In the next section, we will focus on the empirical evidence regarding the labor market and additional business cycle moments in the United States and Italy. We are interested in these two countries in particular because their correlations have a similar shape, exhibit the same sign shift and break at the same date. In addition, there are no immediately apparent reasons why the correlation should be so similar between these countries. They do not share a common labor market or currency union and have different political systems.
4.2
To explain the sign switch in the correlation between productivity and unemployment, the literature has offered up a number of explanations, including the changing relative importance of technology shocks and shocks to aggregate demand, an improvement in monetary policy and a decrease in labor market frictions 5 . In the absence of a structural model, we will focus on the hypothesis that labor market frictions drove the change in the correlation of unemployment and productivity. We will limit our comparison to the United States and Italy, two countries that at rst glance do not seem to have very much in common in terms of labor market exibility. Barnichon (2010) offers insight into why decreasing labor market frictions would affect the correlation between unemployment and productivity. He suggests that if hiring costs decline, it is easier for rms to adjust the number of workers in response to uctuations in demand. As a result, hours per worker and effort6 uctuate less. Barnigures 7 - 9 in the Appendix Barnichon (2010), Gali and Gambetti (2008), Gali and van Rens (2010) 6 Effort, which may be measured as approximate labor utilization by the number of hours per employee, overtime hours, the ratio of production to non-production workers, accident rates, and materials input growth (Marchetti and Nucci (2006)) is not included in our analysis
5 See 4 See
chon (2010) also nds that the elasticity of hours per worker has increased leading to an increased volatility of hours per worker. Gali and van Rens (2010) and Gali and Gambetti (2008) offer similar explanations to explain the shift in correlation between productivity and output. Gali and van Rens (2010) suggest that labor market frictions make it costly to adjust employment, which implies rms rely more on the intensive margins (hours and effort) in response to demand. As a result of their structural model analysis, they nd that as frictions fall, it becomes optimal to adjust labor more through employment and less through effort. Furthermore, they state that recent evidence points to a rise in the elasticity of labor input with respect to output. Following Barnichon (2010), we should expect to see similar characteristics and timing in the United States and Italy along the following dimensions: 1) a rising share of temporary workers 2) a decline in the unionization rate 3) a sectoral shift from manufacturing to services7 We focus here on a comparison between United States and Italy according to these three points and the additional moments.
4.2.1
Temporary workers
Temporary workers is a difcult dimension on which to compare the United States and Italy, in large part because several denitions of what it means to be a temporary worker exist.8 However, in the United States it is clear that temporary workers played a bigger
7 The connection between the sectoral shift from manufacturing to services and labor market exibility
may not be immediately obvious. However, DAgostino et al. (2006) nd that institutional frameworks affecting the degree of exibility in the labor market play an important role in the level of service sector employment. For example, in their econometric analysis of the determinants of service sector employment, they nd a negative effect of the rate of national union density on the service sector employment share. They report similar results for the effect of national employment protection legislation. 8 See Osterman (2001) for a full list of denitions.
10
role in the US economy starting in the late 70s and early 80s. According to Osterman (2001), from "1979 to 1995 the temporary help supply industry grew at a rate of 11.2 percent a year, ve times the rate for total U.S. non-farm employment". In addition, Osterman (2001) shows that, according to Census data, between "1988 and 1996 fully 22 percent were in business services and engineering/management services, i.e. the two sectors, which supply contract and contingent labour". The series for temporary workers in Italy also displays an upward trend starting with the mid 80s (gure 11).9 The slope of the trend becomes more pronounced after 1993, when a series of labor market reforms were implemented in Italy. According to this criterion, the two countries seem to have a similar evolution.
4.2.2
The evolutions of the trade union densities are presented in gure 11 in the Appendix. The rate of union membership in the United States experienced a "modest and concentrated decline in the 1979 to 1984 period" (Gosling and Lemieux (2004)), with the peak of union membership in absolute terms in 1979 with 21 million (Mayer (2004)). However by 2003 union membership stood at 15.8 million (Mayer (2004)). In terms of proportion, only 11.5% of employed workers were union members in 2003 (Mayer (2004)). In addition to a decrease in membership, unions also became less relevant for setting employment terms. Union wage setting in the 1990s is described as decentralized with "unions [having] little inuence over pay in the private sector" (Gosling and Lemieux (2004)). The evolution of the trade union density in Italy displays a declining trend starting with the beginning of the 80s. The pattern is very similar to the one of US, although in
9 Unfortunately we lack data before 1983 so
11
absolute terms the unionization rate for US is much lower than the one in Italy over the entire sample period. However, in order to accurately compare the two countries along this dimension we need to consider as well the evolution of the coverage rate in Italy, since for US the two indicators coincide. In the case of Italy, the coverage and unionization rates differ because the impact of the policies adopted by the members of the union extend to all the workers and not just to union members. The coverage ratio has decreased since the beginning of the 1970s until 2000 and displays two main shifts in the trend, one in the mid 80s and the other one at the beginning of the 90s. These changes can be associated with the two breaks in the correlation between unemployment and productivity observed in our data, as well as two labor market reforms that took place in Italy, one in the mid 1980s and one in 1993 (Jimenez-Rodriguez and Russo, 2010). The process of deregulation from 1984 consisted mainly of the introduction of parttime contracts and the abolishment of the mechanism of automatic wage indexation, characterized by uniform wage adjustments to ination across workers. The reforms implemented in 1993 regarded a broad range of issues and established a new institutional framework for bargaining procedures, union representations and general employment policies. The agreements provided a foundation for a better representation of employees and collective bargaining (OECD (2004) ; Visser (2008)). The Income Policy Agreement from 1993 created a new bargaining system which incorporated a national and regional level. The former is meant to protect the purchasing power of wages, while the second aims at coordinating the additional wage components with rm performance and therefore improves the exibility of the wage determination by making it more market driven and sensitive to the economic conditions (Devicienti, Maida, and Pacelli, 2006). Although the reforms implemented in 1993 were meant to increase the exibility of the labor market, it is not clear to what extent they were implemented in an efcient 12
manner and whether the objective was achieved. However, assuming that these institutional changes lead to a certain extent to a decrease in the rigidities, according to our data these effects are associated with a negative correlation between unemployment and productivity and not a positive one.
4.2.3
According to Kutscher and Personick (1986), a substantial shift in employment between the manufacturing and service sectors can be observed beginning in the late 1970s: the goods-producing sector lost 3 million jobs between 1979 and 1983, "while serviceproducing jobs increased every year during that time span, by a total of 4.1 million" (1986). While the goods-producing sector recovered slightly in the mid-1980s, the "gain was dwarfed by the almost 3.0 million new service-producing jobs added in that single year" (Kutscher and Personick (1986)). See gure 10 in the Appendix for the evolution in employment shares in the US. The sectoral shift from manufacturing to services took place in Italy as well, in very similar proportions with the one in the US. We can notice from gure 10 that the proportion of workers in the service sector relative to manufacturing increased between 1970 and 2011, with a more pronounced upper trend in the mid 80s.
4.2.4
Empirical evidence points towards some similarities across the labor markets in US and Italy, such as a common evolution of temporary workers and a sectoral shift from manufacturing to services. However, these features are common to many industrialized countries. More importantly, there are substantial differences regarding the role played by labor unions in each country. Therefore, while the countries display similar trends towards exibility since the 1970s, the evidence points to a more exible market in US. 13
4.3
We consider here the cyclicality of productivity with respect to output as well as the volatility of employment and hours with respect to output. Furthermore we discuss these moments in the context of labor markets, and compare our results to the literature. According to Barnichon (2010) and Gali and van Rens (2010), labor market exibility can help explain both the sign shift in the correlation between unemployment and productivity and the changing cyclicality of productivity. Furthermore, using a structural model, Gali and van Rens (2010) also nd that as labor frictions fall, rms are more likely to adjust labor through the extensive margin, thereby increasing the volatility of employment. Futhermore, Gali and Gambetti (2008) nd evidence that the volatility of hours risen considerably relative to the volatility of output, but declined in absolute terms. They take this as evidence "against a strong version of the good luck hypothesis, and reacting instead changes in either the composition of shocks or in the structure and transmission mechanisms operating in the U.S. economy" (2008). These structural changes can be, for example, related to improvements in monetary policy and labor market characteristics. In Table 1 below, we show unconditional statistics for the cyclicality of productivity with respect to output, the volatility of employment with respect to output and output volatility with respect to hours. See gure 16 for the development of these statistics over time for each country.
14
Business Cycle Statistics: United States and Italy Italy All Sample Corr (Unemployment, productivity) Corr (Unemployment, productivity) Corr (Productivity, output) Vol: Employment to output Vol: Hours relative to output -0.06 -0.06 0.81 0.50 0.44 US All Sample Corr (Unemployment, productivity) Corr (Productivity, output) Vol: Employment to output Vol: Hours relative to output -0.01 0.39 0.70 0.29 1970-1983 -0.35 0.64 0.64 0.24 1983-2011 0.24 0.20 0.78 0.36 1970-1983 -0.07 -0.05 0.88 0.44 0.31 0.73 0.56 0.55 1983-1993 0.44 -0.07 0.78 1993-2011 -0.50
In terms of the procyclicality of productivity, the US and Italy display different behavior. In the United States, the strength of this correlation falls signicantly in the second half of the sample, while it remains constant in Italy. We nd the US labor market to be more exible than its Italian counterpart thus reinforcing for the claim made by Gali and van Rens (2010) that increased labor market exibility is responsible for the vanishing procyclicality of productivity. However, both Italy and the United States have experienced a relative increase in the volatility of employment and hours with respect to output over the second half of the sample. In their paper, Gali and van Rens (2010) attribute this increase in labor input volatility to rms increasing reliance on labor input adjustments in order to meet changes in output, and nd that as labor market frictions decrease in their model, the volatility of employment relative to output increases as
15
well. Furthermore, Barnichon (2010) attributes 60% of the switch in the correlation between labor productivity and unemployment to structural changes related to the labor market and monetary policy, which suggests the correlation pattern should reect the degree of labor market exibility to some extent. The similarity in the pattern of the correlation between the United States and Italy suggests that labor market exibility is not likely to be the only relevant explanation for the developments in the evolutions of correlations. However, he does not denote which of the two structural changes are more important, so our conclusion is only tentative and further research is needed.
Conclusion
Recent developments in business cycle statistics have been documented only for US. In this paper, we address (i) the sign shift in the unconditional correlation between productivity and unemployment, (ii) a decrease in the procyclicality of productivity and (iii) an increase in the volatility of employment and hours relative to output for 10 OECD countries. Barnichon (2010) provides two main explanations for these developments, one consisting of an increase in the size of technology shocks relative to other shocks and another based on a increase in labor market exibility. The purpose of this paper is twofold. First, we extend the analysis to other OECD countries in order to investigate whether the changes in correlations remain valid and group the countries according to similar evolutions of the series. Second, we investigate whether the degree of labor market exibility could be a valid explanation for similar developments and patterns in the group formed by US and Italy. In order to asses this assumption we look at empirical evidence regarding the evolution of temporary workers, unionization rates, sectoral shifts. Finally, we analyze additional business cycle statistics, such as the cyclicality of
16
labor productivity and the volatilities of macroeconomic series, in order to determine whether the three developments listed above are consistent and reect the characteristics of the labor market within our group of interest. We nd that there are signicant differences in the exibility and evolution of the labor markets in US and Italy despite the high similarities in the patterns of correlations between unemployment and labor productivity. The two countries display similarities only in terms of the evolution of temporary workers and sectoral shifts from manufacturing to services, the latter being a common feature of most industrialized countries. However, the role played by the unions point to a more exible market in US. Furthermore, the effects of the reforms implemented in Italy at the beginning of the 90s are associated with a switch in the correlation from positive to negative and not vice versa. Finally, the procyclicality of productivity declined only in US and not in Italy, which provides evidence for Gali and van Rens (2010) claim that increased labor market exibility is responsible for the vanishing procyclicality of productivity. However, we consider that labor market exibility is not likely to be the only relevant explanation for the developments in the evolutions of correlations between labor productivity and unemployment, and the increase in the volatility of employment and hours relative to output. We do not assess here the explanation based on the relative evolution of technology and non-technology shocks, therefore this hypothesis remains as a ground for future research.
17
References
Barnichon, R. (2010). Productivity and Unemployment over the Business Cycle. Journal of Monetary Economics 57. DAgostino, A., R. Serani, and M. Ward-Warmedinger (May 2006). Sectoral Explanations of Employment in Europe: The Role of Services. European Central Bank: Working Paper Series 625. Devicienti, F., A. Maida, and L. Pacelli (2006). The Resurrection of the Italian Wage Curve. LABOR Center for Employment Studies Working Paper (52). Gali, J. and L. Gambetti (2008). On the Sources of Great Moderation. American Economic Journal: Macroeconomics 1(1), 2657. Gali, J. and T. van Rens (2010). The Vanishing Procycality of Labor Productivity. Unpublished manuscript. Gosling, A. and T. Lemieux (2004). Labor Market Reforms and Changes in Wage Inequality in the United Kingdom and the United States. Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000 June. Jimenez-Rodriguez, R. and G. Russo (2010). Aggregate Employment Dynamics and (Partial) Labor Market Reforms? Center for Studies in Economics and Finance Working Paper (260). Kutscher, R. and V. Personick (1986). Deindustrialization and the shift to services. Monthly Labor Review June. Marchetti, D. and F. Nucci (May 2006). Labor effort over the business cycle. Banca DItalia: Temi di discussione del Servizio Studi 625. 18
Mayer, G. (2004). Union Membership Trends in the United States. Congressional Research Service: CRS Report for Congress August. Nickell, W. (2006). The Cep-Oecd Institutions Data Set. CEP Discussion Paper 759. OECD (2004). Wage-setting Institutions and Outcomes. OECD Employment Outlook, 127181. Osterman, P. (2001). Flexibility and Commitment in the United States Labour Market. International Labour Organisation, Research Programme: "Adjustment of labour markets to economic and structural change: labour market exibility, security and labour market policies 18. Stat, O. (2012). Real gdp, average hours per worker, employment, unemployment. Statistics. Stock, J. H. and M. W. Watson (2002). Has the Business Cycle Changed and Why? NBER Macroeconomics Annual 17, 159218. Visser, J. (2008). The Quality of Industrial Relations and the Lisbon Strategy. European Commission, Industrial relations in Europe.
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6
6.1
Appendix
Robustness check
Robustness Check, Business Cycle Statistics: United States and Italy Italy All Sample 1970-1983 -0.05 -0.05 0.88 0.45 0.33 0.68 0.60 0.62 1983-1993 0.32 0.01 0.73 1993-2011 -0.29
Corr (Unemployment, productivity) Corr (Unemployment, productivity) Corr (Productivity and output) Vol: Employment to output Vol: Hours to output
Corr (Unemployment, productivity) Corr (Productivity and output) Vol: Employment to output Vol: Hours to output
20
6.2
Figures
Figure 1: 10 year rolling correlations between unemployment and productivity
21
22
1 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 Norway 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
1970 1971 1972 1973 1975 1976 1977 1978 1980 1981 1982 1983 1985 1986 1987 1988 1990 1991 1992 1993 1995 1996 1997 1998 2000 2001 Italy
23
-0.5
24
Japan
New Zealand
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 1970 1971 1972 1973 1975 1976 1977 1978 1980 1981 1982 1983 1985 1986 1987 1988 1990 1991 1992 1993 1995 1996 1997 1998 2000 2001
25
26
-0.8 -0.8 -0.6 -0.4 -0.2 0.2 0.4 0.6 0.8 0.2 0.4 0.6 0.8 0 0 Italy New Zealand
-0.6
-0.4
-0.2
27
US Sweden Norway UK
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
0.2
0.4
0.6
-0.6
-0.4
-0.2
28
Finland Japan
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
-0.4
-0.2
29
Australia Canada
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
10
20
30
40
50
60
70
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90
10 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
20
30
40
50
60
70
80
1970
1972
1974
1976
1978
1980
1982
1984
1986
30
Italy
Manufacturing Services
1988
US
1990
1992
1994
1996
1998
2000
Manufacturing
2002
2004
2006
Services
2008
10 10 12 14 0 2 4 6 8
20
30
40
50
60
1970
1972
1974
1976
1978
1980
1982
1984
Italy
1986
1988 Italy
Temporary workers
31
80.0 81.0 82.0 83.0 84.0 85.0 86.0 87.0 88.0 89.0
1990
US
1992
1994
1996
1998
2000
Coverage ratio(IT)
2002
2004
2006
2008
2010
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
79.0
0.001 0.005 0.015 0.025 0.01 0.02 -0.01 0.01 0.02 0.03 0 0
0.002
0.003
0.004
0.005
0.006
0.007
0.04
32
Employment Hours
Output
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
0.005 0.002 0.004 0.006 0.008 0.012 0.014 0.01 0.02 0.01 0
0.015
0.025
Productivity
Productivity
33
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
0.015
0.025
0.004
0.006
0.008
34
Output Employment
Hours
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
-0.04 0.01 0.02 0.03 0.04 0.05 -0.06 -0.05 -0.04 -0.03 -0.02 -0.01 0.01 0.02 0.03 0.04 0.05 0 0 Real GDP: Deviations from trend
-0.03
-0.02
-0.01
35
Productivity: Deviations from trend
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 2003 Q3 2004 Q1 2006 Q3 2007 Q1 2009 Q3 2010
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 2003 Q3 2004 Q1 2006 Q3 2007 Q1 2009 Q3 2010
Employment/Output
Employment/Output
36
Hours/Output Hours/Output
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
0.005 0.03 0.018 0.016 0.014 0.012 0.01 0.008 0.006 0.004 0.002 0 0.005 0.015 0.025 0.01 0.02 0
0.015
0.025
0.035
0.01
0.02
Employment
Employment
Employment
Lab prod1
37
Real GDP Lab prod1 Hours Hours
Lab prod1
Hours
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
0.015
0.025
0.005 0
0.015
0.025
0.01
0.02
Employment
Employment
Employment
38
Lab prod1 Lab prod1 Hours Hours
Lab prod1
Hours
Q1 1972 Q2 1973 Q3 1974 Q4 1975 Q1 1977 Q2 1978 Q3 1979 Q4 1980 Q1 1982 Q2 1983 Q3 1984 Q4 1985 Q1 1987 Q2 1988 Q3 1989 Q4 1990 Q1 1992 Q2 1993 Q3 1994 Q4 1995 Q1 1997 Q2 1998 Q3 1999 Q4 2000
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
0.02
0.03
0.04
0.05
0.015
0.025
0.01
0.02
Real GDP
Employment
Employment
Employment
39
Lab prod1 Lab prod1 Hours Hours
Lab prod1
Hours
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q2 2001
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
0.015
0.025
0.015
0.025
Employment
Employment
40
Lab prod1 Lab prod1 Hours Hours
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
Q1 1971 Q2 1972 Q3 1973 Q4 1974 Q1 1976 Q2 1977 Q3 1978 Q4 1979 Q1 1981 Q2 1982 Q3 1983 Q4 1984 Q1 1986 Q2 1987 Q3 1988 Q4 1989 Q1 1991 Q2 1992 Q3 1993 Q4 1994 Q1 1996 Q2 1997 Q3 1998 Q4 1999 Q1 2001
0.15
0.05 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 0.1 0.2 0.3
0.15
0.25
Unemployment
Unemployment
Unemployment
41
Q3 1973 Q4 1973 Q1 1974 Q2 1974 Q3 1974 Q4 1974 Q1 1975 Q2 1975 Q3 1975 Q4 1975 Q1 1976 Q2 1976 Q3 1976 Q4 1976 Q1 1977 Q2 1977
Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000 Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
Unemployment
Unemployment
Unemployment
Q3 1981 Q4 1981 Q1 1982 Q2 1982 Q3 1982 Q4 1982 Q1 1983 Q2 1983 Q3 1983 Q4 1983 Q1 1984 Q2 1984 Q3 1984 Q4 1984 Q1 1985 Q2 1985 Q3 1985 Q4 1985 Q1 1986 Q2 1986 Q3 1986 Q4 1986 Q1 1987 Q2 1987 Q3 1987 Q4 1987 Q1 1988 Q2 1988 Q3 1988 Q4 1988 Q1 1989 Q2 1989 Q3 1989 Q4 1989 Q1 1990 Q2 1990 Q3 1990 Q4 1990 Q1 1991 Q2 1991 Q3 1991 Q4 1991 Q1 1992 Q2 1992 Q3 1992 Q4 1992 Q1 1993 Q2 1993
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001
42
43
0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 0.02 0.1 0.04 0.06 0.08 0.12 0
Unemployment
Unemployment
44
Q1 1970 Q3 1971 Q1 1973 Q3 1974 Q1 1976 Q3 1977 Q1 1979 Q3 1980 Q1 1982 Q3 1983 Q1 1985 Q3 1986 Q1 1988 Q3 1989 Q1 1991 Q3 1992 Q1 1994 Q3 1995 Q1 1997 Q3 1998 Q1 2000 Q3 2001 Q1 1970 Q2 1971 Q3 1972 Q4 1973 Q1 1975 Q2 1976 Q3 1977 Q4 1978 Q1 1980 Q2 1981 Q3 1982 Q4 1983 Q1 1985 Q2 1986 Q3 1987 Q4 1988 Q1 1990 Q2 1991 Q3 1992 Q4 1993 Q1 1995 Q2 1996 Q3 1997 Q4 1998 Q1 2000
Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011