Rethinking Labour Market Institutions: Empirical evidence on unemployment effects

While major international organizations like the OECD and the World Bank have shifted away from the consensus that labour market deregulation inherently reduces unemployment, empirical evidence remains fragmented and highly sensitive to methodological choices. This study addresses the persistent challenges of endogeneity and model specification by evaluating a range of dynamic unemployment models across 27 OECD countries from 1990 to 2019. Utilizing two distinct employment protection indicators, we compare random- and fixed-effects models against one- and two-step GMM estimators, specifically the Arellano-Bond (AB) and Arellano-Bover/Blundell-Bond (ABB) approaches. Our findings indicate that only the one-step AB models satisfy all diagnostic requirements, revealing high unemployment persistence and a robust negative correlation between economic growth and unemployment, while highlighting the fragility of standard deregulation metrics in panel data analysis