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Vol. 61, No. 2, pp. 154-167 (2010)

“International Comparison of Variation in Age Specific Unemployment Rate”
Daiji Kawaguchi (Graduate School of Economics and Faculty of Economics, Hitotsubashi University, and RIETI), Tetsushi Murao (Graduate Student of Economics, Hitotsubashi University)

The way age specific unemployment rates fluctuate over the business cycle differs greatly across countries. This paper examines the effect of labor market institutions on the fluctuation of age-specific unemployment rates based on panel data of 18 OECD countries between 1971 and 2000. The analysis indicates that stricter employment protection mitigates the effect of macroeconomic shocks on the unemployment rate of mature workers, but not on the youth unemployment rate. This result is consistent with a theoretical prediction that employment protection has larger effect on elderly workers for whom firms' incentive of labor hoarding is weaker. In addition, a higher unionization rate makes the youth unemployment rate more sensitive to macroeconomic shocks.