Springer Nature is making SARS-CoV-2 and COVID-19 research free. View research | View latest news | Sign up for updates

Labour market transitions, shocks and institutions in turbulent times: a cross-country analysis

  • 58 Accesses


This paper analyses the impact of the business cycle on labour market dynamics in EU member states and the US during the first decade of the 21st century. Using unique measures of labour market flows constructed from worker-level micro data, we examine to what extent macro shocks were transmitted to national labour markets. We apply the approach by Blanchard and Wolfers (Econ J 110(462):1–33, 2000) to analyse the role of the interaction of macroeconomic shocks and labour market institutions for worker transitions in order to explain cross-country differences in labour market reactions in a period including the Great Recession. Our results suggest a significant influence of trade unions in channelling macroeconomic shocks. Specifically, union density moderates these impacts over the business cycle, i.e. countries with stronger trade unions experience weaker reactions of the unemployment rate and of worker transitions.

This is a preview of subscription content, log in to check access.

Fig. 1

Source: EU-LFS, CPS, ICTWSS, own calculation

Fig. 2

Source: EU-LFS, CPS, own calculation

Fig. 3

Source: EU-LFS, CPS, own calculation

Fig. 4

Source: EU-LFS, CPS, ICTWSS, own calculation


  1. 1.

    Note that this methodology does not yield causal effects. The word “effect” should therefore be broadly interpreted in the following.

  2. 2.

    The analysis of the evolution of unemployment by Bertola (2017) also includes the time period of the Great Recession.

  3. 3.

    The countries are Austria, Belgium, Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, Greece, Hungary, Italy, Luxembourg, Norway, Poland, Portugal, Sweden, Slovenia, Slovak Republic and the United Kingdom.

  4. 4.

    This means that a person is defined as employed if he or she performed some work for wage/salary or for profit or family gain, or—if temporarily not at work—had a formal attachment to his or her job or was with an enterprise; and as unemployed if he or she was without work, currently available for work, and seeking work (ILO 1988).

  5. 5.

    Alternative measures of the business cycle are for example the output gap, the real interest rate and total factor productivity growth, which we apply in robustness tests (see Sect. 5.2).

  6. 6.

    See e.g. Burda and Hunt (2011) and Burda and Weder (2016) for an analysis of the German experience during the Great Recession.

  7. 7.

    The institutional measures are the replacement rate of unemployment benefits and their length, employment protection legislation, union coverage, union density, the level of wage bargaining, active labour market policies and the tax wedge.

  8. 8.

    See the appendix B for a detailed description of the shocks and institutions variables, as well as the respective data sources.

  9. 9.

    The findings are robust to using differences in unemployment levels instead of the unemployment level as dependent variable (results available from the authors upon request).

  10. 10.

    Additionally, we include the share of short-time workers and hours worked in the benchmark regression. The findings remain robust to these alterations (results available from the authors upon request).

  11. 11.

    This means that in equation 1, we use \(Y_{it}*X^j_{it}*D_{it}\) instead of \(Y_{it}*X^j_{it}\), where \(D_{it}\) takes the value 1 in case of a recession, and 0 otherwise, or the reverse in case of an economic boom. A recession is defined as a negative or zero yearly GDP growth rate. Accordingly, an economic boom is defined by a positive GDP growth rate.

  12. 12.

    Table A.4 in the online appendix displays the estimates of the benchmark model using annual data. The results are very similar compared to applying three-year windows.

  13. 13.

    This is also the case when conducting this robustness test for the inflow into inactivity for young workers only (results available from the authors upon request).


  1. Bachmann R, Felder R (2018a) Job stability in Europe over the cycle. Int Labour Rev 3(157):481–516

  2. Bachmann R, Felder R (2018b) Labour market transitions, shocks and institutions in turbulent times: a cross-country analysis. IZA Discussion Papers 11443, Institute of Labor Economics (IZA).

  3. Bachmann R, Bechara P, Kramer A, Rzepka S (2015) Labour market dynamics and worker heterogeneity during the Great recession–Evidence from Europe. IZA J Eur Labor Stud 4(1):19

  4. Bassanini A, Duval R (2006) The determinants of unemployment across OECD countries: reassessing the role of policies and institutions. OECD Econ Stud 42(1):7–86

  5. Bassanini A, Garnero A (2013) Dismissal protection and worker flows in OECD countries: evidence from cross-country/cross-industry data. Labour Econ 21:25–41

  6. Belot M, Van Ours JC (2004) Does the recent success of some OECD countries in lowering their unemployment rates lie in the clever design of their labor market reforms? Oxford Econ Papers 56(4):621–642

  7. Bentolila S, Bertola G (1990) Firing costs and labour demand: how bad is eurosclerosis? Rev Econ Stud 57(3):381–402

  8. Bertola G (1990) Job security, employment and wages. Eur Econ Rev 34(4):851–879

  9. Bertola G (2017) European unemployment revisited: shocks, institutions, integration. Res Econ 3(71):588–612

  10. Bertola G, Rogerson R (1997) Institutions and labor reallocation. Eur Econ Rev 41(6):1147–1171

  11. Blanchard O (1999) European unemployment: the role of shocks and institutions. Baffi Lecture Rome

  12. Blanchard O, Wolfers J (2000) The role of shocks and institutions in the rise of European unemployment: the aggregate evidence. Econ J 110(462):1–33

  13. Boeri T (1999) Enforcement of employment security regulations, on-the-job search and unemployment duration. Eur Econ Rev 43(1):65–89

  14. Boeri T, Van Ours J (2013) The economics of imperfect labor markets. Princeton University Press, Princeton

  15. Burda MC, Hunt J (2011) What explains the German labor market miracle in the great recession? Brook Papers Econ Act 2011(1):273–319

  16. Burda MC, Weder M (2016) Payroll taxes, social insurance, and business cycles. J Eur Econ Assoc 14(2):438–467

  17. Card D, Kluve J, Weber A (2010) Active labour market policy evaluations: a meta-analysis. Econ J 120(November):F452–F477

  18. Card D, Kluve J, Weber A (2018) What works? A meta analysis of recent active labor market program evaluations. J Eur Econ Assoc 16(3):894–931

  19. de Serres A, Murtin F (2013) Do policies that reduce unemployment raise its volatility? OECD Economics Department Working Paper 1020

  20. Ebell M (2011) On the cyclicality of unemployment: resurrecting the participation margin. Labour Econ 18(6):822–836

  21. Eichhorst W, Feil M, Marx P (2010) Crisis, what crisis? Patterns of adaptation in European labor markets. Appl Econ Q 61(Supplement):29–64

  22. Elsby M, Hobijn B, Sahin A (2013) Unemployment dynamics in the OECD. Rev Econ Stat 95(2):530–548

  23. Elsby MW, Michaels R, Solon G (2009) The ins and outs of cyclical unemployment. Am Econ J Macroecon 1(1):84–100

  24. European Central Bank (2012) Euro are labour markets and the crisis. ECB Occasional Paper Series 138

  25. Eurostat (2014) Harmonized unemployment rate. Accessed 3 Feb 2014

  26. Flaig G, Rottmann H (2013) Labour market institutions and unemployment: an international panel data analysis. Empirica 40(4):635–654

  27. Flood S, King M, Ruggles S, Warren JR (2015) Integrated public use microdata series, Current Population Survey: Version 4.0. [Machine-readable database]. Tech rep, University of Minnesota, Minneapolis

  28. Freeman RB (1978) A fixed effect logit model of the impact of unionism on quits. NBER Working Paper 280

  29. Fujita S, Ramey G (2009) The cyclicality of separation and job finding rates. Int Econ Rev 50(2):415–430

  30. Gal P, Theising A (2015) The macroeconomic impact of policies on labour market outcomes in OECD countries. OECD Economics Department Working Paper 1271

  31. Goerke L, Pannenberg M (2011) Trade union membership and dismissals. Labour Econ 18(6):810–821

  32. Hijzen A, Martins PS (2016) No extension without representation? Evidence from a natural experiment in collective bargaining. International Monetary Fund Working Paper 16/143

  33. ILO (1988) Current International Recommendations on Labour Statistics, 1988 Edition. International Labour Organisation, Geneva

  34. Ivlevs A, Veliziotis M (2017) What do unions do in times of economic crisis? Evidence from Central and Eastern Europe. Eur J Ind Relat 23(1):81–96

  35. Layard PRG, Nickell SJ, Jackman R (2005) Unemployment: macroeconomic performance and the labour market. Oxford University Press, Oxford

  36. Layard R, Nickell SJ, Jackman R (1991) Unemployment: macroeconomic performance and the labour market. Oxford University Press, Oxford

  37. McDonald IM, Solow RM (1981) Wage bargaining and employment. Am Econ Rev 71(5):896–908

  38. Medoff JL (1979) Layoffs and alternatives under trade unions in US manufacturing. Am Econ Rev 69(3):380–395

  39. Messina J, Vallanti G (2007) Job flow dynamics and firing restrictions: evidence from europe. Econ J 117(521):F279–F301

  40. Mortensen DT, Pissarides CA (1994) Job creation and job destruction in the theory of unemployment. Rev Econ Stud 61(3):397–415

  41. Mortensen DT, Pissarides CA (1999) New developments in models of search in the labor market. In: Ashenfelter O, Card D (eds) Handbook of labor economics, 1st edn. Elsevier, Amsterdam, pp 2567–2627 Chapter 39

  42. Nickell S (1997) Unemployment and labor market rigidities: Europe versus North America. J Econ Perspect 11(3):55–74

  43. Nickell S, Nunziata L, Ochel W (2005) Unemployment in the OECD since the 1960s. What do we know?*. Econ J 115(500):1–27

  44. Nickell S, Andrews M (1983) Unions, real wages and employment in Britain 1951–79. Oxford Econ Papers 35(Suppl):183–206

  45. Nunziata L (2002) Unemployment, labour market institutions and shocks. Economics Series Working Papers 2002-w16

  46. OECD (2013) OECD Employment Outlook 2013. OECD Publishing, Paris

  47. Ohanian LE, Raffo A (2012) Aggregate hours worked in OECD countries: new measurement and implications for business cycles. J Monet Econ 59(1):40–56

  48. Orlandi F (2012) Structural unemployment and its determinants in the EU countries. European Economy-Economic Papers 455, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission

  49. Perman R, Stephan G, Tavera C (2015) Okun’s Law-A meta-analysis. Manch Sch 83(1):101–126

  50. Petrongolo B, Pissarides CA (2008) The ins and outs of European unemployment. Am Econ Rev 98(2):256–262

  51. Pierse T, McHale J (2015) Unions and involuntary job separations. Human Resour Manag J 496–515(25):4

  52. Scarpetta S (1996) Assessing the role of labour market policies and institutional settings on unemployment: a cross-country study. OECD Econ Stud 26(1):43–98

  53. Schmieder JF, von Wachter T (2016) The effects of unemployment insurance benefits: new evidence and interpretation. Ann Rev Econ 8:547–581

  54. Schmieder JF, von Wachter T, Bender S (2012) The effects of extended unemployment insurance over the business cycle: evidence from regression discontinuity estimates over 20 years. Q J Econ 127(2):701–752

  55. Traxler F, Kittel B (2000) The bargaining system and performance a comparison of 18 OECD countries. Comp Polit Stud 33(9):1154–1190

  56. Wolfers J (2003) Is business cycle volatility costly? Evidence from surveys of subjective well-being. Int Fin 6(1):1–26

  57. Yashiv E (2008) U.S. labor market dynamics revisited. Scand J Econ 109(4):779–806

Download references

Author information

Correspondence to Ronald Bachmann.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

We thank Thomas K. Bauer, Daniel Baumgarten, Giuseppe Bertola, Romain Duval, Hanna Frings, Matthias Giesecke, Philipp Jäger, Lisa Leschnig, Pedro S. Martins, Christian Merkl, Battista Severgnini as well as participants of the 30th Annual Congress of the European Economic Association, the IZA/OECD Employment Seminar, the World Bank DIME seminar, the “Conference in honor of Christopher A. Pissarides” at SciencesPo, Paris, the FAU/IAB-Seminar Macroeconomics and Labor Markets in Nürnberg, the 9th RGS Doctoral Conference in Economics, the 21st SMYE, the Jahrestagung of the Verein für Socialpolitik 2016 and seminars at RWI for helpful comments and suggestions. We are grateful to Fernanda Martinez Flores for excellent research assistance.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (pdf 0 KB)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Bachmann, R., Felder, R. Labour market transitions, shocks and institutions in turbulent times: a cross-country analysis. Empirica (2020).

Download citation


  • Worker flows
  • Labour market dynamics
  • Institutions
  • Great recession

Mathematics Subject Classification

  • J6
  • E24
  • E32