Labor-market volatility and financial development in the advanced OECD countries: does labor-market regulation matter?

This paper investigates the relationship between financial development and labor-market volatility in 15 OECD countries from 1974 to 2007. I argue that financial development should affect corporate governance and then how firms will determine wages and the number of hours worked, especially for low-skilled workers. First, my results indicate that financial development is associated with higher employment and wage volatility, but with no significant differences across skill levels. Second, using a threshold regression model, I show that the increasing effect of higher financial development on labor-market volatility is larger in countries with more labor-market regulation. doi:10.1057/ces.2016.2; published online 4 February 2016 Keywords: financial development, labor-market volatility, labor-market regulation, social and welfare policies, threshold regression model JEL Classification: G1, I39, J63
INTRODUCTION Since the 1980s economic insecurity has grown, especially for low-skilled workers, with higher unemployment rates, less stable employment and more volatile wages (OECD, 2007). At the same time, most [...]