Aggregate Employment Dynamics and (Partial) Labour Market Reforms

Abstract

European labour markets have undergone several important innovations over the last three decades. Most countries have reformed their labour markets since the mid-1990s, with the liberalization of fixed-term contracts and temporary work agencies being the common elements to such reforms. This paper investigates the existence of a change in the dynamic behaviour of the aggregate employment for major European Union countries - France, Germany, Italy, and Spain. According to our results, partial labour market reforms have made the response of the aggregate employment to output shocks larger and quite comparable to that found for the UK - the most flexible labour market in Europe since the Thatcher reforms.labour market deregulation; dynamic responses