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Working Paper Series - Unemployment And Labor Market Institutions: Theory and Evidence From The GCC



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Unemployment And Labor Market Institutions: Theory and Evidence From The GCC


Volume : 0

No : 0

ISSN : WPS0806

Publisher : Arab Planning Institute - Kuwait

Author (s) : Mohamed Suliman , MahmoudNabi 

Published Date : 1/1/2008


Contents :
The theoretical modeldelves into the relationship between labor market institutions and unemploymentby proving two propositions: (1) allowing informal activity bolsters jobcreation, and (2) if the institutional environment is initially, sufficiently,weak, then mitigating it will lower unemployment. Simulating the model with theGCC’s unemployment for the period 1990-2007 allows us to decipher the validityof the model. The institutional environment is represented in this simulationby social insurance which is captured through oil prices. Hence, an increase inoil prices is assumed to lead to higher social insurance and, therefore ,tohigher cost of hiring labour . The parameters are selected with the objectiveof minimizing the error gap between the effective unemployment rate and thesimulated unemployment rate . The effective unemployment rate is constructed asa weighted average of the unemployment rate of nationals and non-nationals. Theweights are the shares of national and non-national labour-force in the GCCcountries. Expositional simulations verified the second proposition. Thus,improving labor market institutions, that are initially weak may discerniblyalleviate unemployment problems in the GCC. 

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