2007] Employment Performance and Institutions: New Answers to an Old Question

Lucia Faggio for their helpful remarks. We gratefully acknowledge the access to the FRDB Social Reforms Database. We are also grateful for the comments provided by participants in research seminars at CEPN and PSE, as well as by participants of the EEA, AFSE, EALE and SASE annual conferences. The authors gratefully acknowledge the funding from the ESEMK European project (FP6 STREP1). The usual caveats apply. This paper provides new evidence on the linkages between a large array of institutional arrangements (on product, labour and \u85nancial markets) and employment performance. Our analysis includes unemployment, inactivity and jobless rates, thus allowing us to control for possible substitution e¤ects across situations of non-employment and to check whether institutional rigidities a¤ecting unemployment impact inactivity along the same line. To cope with common problems related to the inclusion of time-invariant institu-tional variables in \u85xed e¤ects models, we present results of regressions based on three di¤erent estimators: PCSE, GLS and FEVD, the last one being a new procedure specif-ically designed to treat slowly changing variables. We build time series data to account for annual evolution of employment protection legislation (EPL), and use new data for unemployment insurance net replacement rates. Moreover, we check for interdependen-cies across product and labour markets legislation by investigating the marginal impact of selected institutional variables. Among other results, we \u85nd evidence of a positive e¤ect of EPL on employment performance as well as of a substitutability relationship across product and labour markets regulation policies