The Beveridge Curve, Unemployment and Wages in the OECD

This paper is an empirical analysis of unemployment patterns in the OECD countries from the 1960s to the 1990s, looking at the Beveridge Curves, real wages as well as unemployment directly. Our results indicate the following. First, the Beveridge Curves of all the countries except Norway and Sweden shifted to the right from the 1960s to the early/mid 1980s. At this point, the countries divide into two distinct groups. Those whose Beveridge Curves continued to shift out and those where they started to shift back. Second, we find evidence that these movements in the Beveridge Curves may be partly explained by changes in labour market institutions, particularly those which are important for search and matching efficiency. Third, labour market institutions impact on real labour costs in a fashion which is broadly consistent with their impact on unemployment. Finally, broad movements in unemployment across the OECD can be explained by shifts in labour market institutions although this explanation relies on high levels of endogenous persistence as reflected in a lagged dependent variable coefficient of around 0.85.