- Email: [email protected]
A comment to the reply to “banking crises, labor reforms, and Unemployment: A Comment”
Journal of Comparative Economics 43 (2015) 1148–1149
Contents lists available at ScienceDirect
Journal of Comparative Economics journal homepage: www.elsevier.com/locate/jce
A comment to the reply to “banking crises, labor reforms, and Unemployment: A Comment” Mariya Aleksynska
a r t i c l e
i n f o
a b s t r a c t
Article history: Received 5 October 2015
Aleksynska, Mariya—A comment to the reply to “banking crises, labor reforms, and Unemployment: A Comment”
JEL classification: J6 J8 Y1
This paper nuances the Bernal-Verdugo, Furceri and Guillaume (2015) estimation results which replicate Bernal-Verdugo, Furceri and Guillaume (2013) findings using corrected data. It highlights the differences in the empirical results across the two papers which are due to data changes, and suggests that the understanding of which labour market reforms are desirable still remains opaque. Journal of Comparative Economics 43 (4) (2015) 1148–1149. © 2015 Published by Elsevier B.V. on behalf of Association for Comparative Economic Studies.
Keywords: Labour market institutions Labour market reforms Flexibility Employment protection legislation Deregulation
In a recent Journal of Comparative Economics article, Bernal-Verdugo, Furceri and Guillaume (2013) — further BFG (2013) — examined the impact of banking crises on unemployment, and tested the impact of labour market reforms towards flexibility on unemployment. In my comment article, Aleksynska (2015), I highlighted several flaws in the data on which the BFG (2013) analysis was based, and which could invalidate their results. BFG accounted for these data flaws, and replicated their key findings in BFG (2015). The main claim of BFG (2015) is that “results and conclusions [of BFG (2013)] are little affected by these methodological flaws”. Based on these new findings, they continue advocating for the necessity of comprehensive labour market reforms towards flexibility. The point of this comment article is to refine the reading of BFG (2015), and to highlight three main issues. First, the BFG (2015) claim that “the results are very similar to those reported in BFG (2013)” needs further nuance. Table 1 of BFG (2015) which replicates the original Table 4 of BFG (2013) is indeed quite similar. However, one key difference, which is not discussed by BFG (2015), is that the results in column 1, based on a revised composite indicator, do show changes as compared to the originally published results: the short-term effect of the composite indicator becomes insignificant upon the data correction, while the medium-term effect is now significant only at 10%, and not at 5% as previously shown. Thus, the principal finding of BFG (2015) that “an increase of one point in the labor market flexibility composite indicator increases the short-term effect of crises on unemployment by 0.3 percentage point, but reduces the medium-term impact by about 0.8 percentage point” is misleading, as it discusses only the magnitude of the coefficients, but not their significance. Second and related, the discussion of Table 1 suggesting that “among the sub-indicators, hiring and firing regulations and centralized collective bargaining remain the ones with the largest medium-term impacts” is also misleading, because estimations in columns 1-7 of Table 1 are based on different samples. Columns 3, 6, and 7 are based on larger and unchanged sample (these estimates are, in fact, simply a copy of the original results), while columns 1, 2, 4, and 5 are based on smaller and modified sample. The coefficients across these regressions are not comparable, as it is not clear to what extent it is the sample composition that drives their magnitude.
http://dx.doi.org/10.1016/j.jce.2015.11.002 0147-5967/© 2015 Published by Elsevier B.V. on behalf of Association for Comparative Economic Studies.
M. Aleksynska / Journal of Comparative Economics 43 (2015) 1148–1149
1149
Third, the readers should also be aware of the fact that the dependent variable in Table 1 column 2 is a hiring index, not minimum wages; and that the dependent variable in column 5 measures hours regulation and not mandated cost of hiring, as explained in my comment article. Since the estimations are done on the 2002-2008 sample, it is only the hiring regulation and hours regulation components that are at stake here, but not the minimum wages or the mandated cost of hiring. Similarly, the labels and the discussion of Figure 2 should name appropriately what the indicators actually measure: i.e., hiring index and hours regulations, but not minimum wages and cost of hiring. Clearly, policy implications are tremendous: it is not the same to suggest reforming hours of work (as embedded into hours regulation) versus social security or payroll taxes (as embedded into mandated cost of hiring). Last but not least, the newly identified reforms based on the corrected data still do not bring us closer to understanding what kinds of reforms actually took place. How many hiring and hours labour market reforms took place, as compared to the reforms of conscription; how many reforms are used to produce estimates for Figure 2? Answers to these questions would greatly help policy makers in search of the reforms that work. These uncovered changes in the results of BFG (2013) due to data corrections are unsurprising, and, if anything, they are reassuring. If accounting for serious data flaws had not led to any changes in the results, then not only the data, but also the appropriateness of the estimation method would need to be questioned. But because of these changes, it is important to have a nuanced reading and presentation of the new empirical findings. References Aleksynska, Mariya, 2015. Banking Crises, Labor Reforms and Unemployment: A Comment. Journal of Comparative Economics (forthcoming). Bernal-Verdugo, Lorenzo E., Furceri, Davide, Guillaume, Dominique, 2013. Banking Crises, Labor Reforms and Unemployment. Journal of Comparative Economics 41, 1202–1219. Bernal-Verdugo, Lorenzo E., Furceri, Davide, Guillaume, Dominique, 2015. Reply to “Banking Crises, Labor Reforms, and Unemployment: A Comment. Journal of Comparative Economics (forthcoming).
Contents lists available at ScienceDirect
Journal of Comparative Economics journal homepage: www.elsevier.com/locate/jce
A comment to the reply to “banking crises, labor reforms, and Unemployment: A Comment” Mariya Aleksynska
a r t i c l e
i n f o
a b s t r a c t
Article history: Received 5 October 2015
Aleksynska, Mariya—A comment to the reply to “banking crises, labor reforms, and Unemployment: A Comment”
JEL classification: J6 J8 Y1
This paper nuances the Bernal-Verdugo, Furceri and Guillaume (2015) estimation results which replicate Bernal-Verdugo, Furceri and Guillaume (2013) findings using corrected data. It highlights the differences in the empirical results across the two papers which are due to data changes, and suggests that the understanding of which labour market reforms are desirable still remains opaque. Journal of Comparative Economics 43 (4) (2015) 1148–1149. © 2015 Published by Elsevier B.V. on behalf of Association for Comparative Economic Studies.
Keywords: Labour market institutions Labour market reforms Flexibility Employment protection legislation Deregulation
In a recent Journal of Comparative Economics article, Bernal-Verdugo, Furceri and Guillaume (2013) — further BFG (2013) — examined the impact of banking crises on unemployment, and tested the impact of labour market reforms towards flexibility on unemployment. In my comment article, Aleksynska (2015), I highlighted several flaws in the data on which the BFG (2013) analysis was based, and which could invalidate their results. BFG accounted for these data flaws, and replicated their key findings in BFG (2015). The main claim of BFG (2015) is that “results and conclusions [of BFG (2013)] are little affected by these methodological flaws”. Based on these new findings, they continue advocating for the necessity of comprehensive labour market reforms towards flexibility. The point of this comment article is to refine the reading of BFG (2015), and to highlight three main issues. First, the BFG (2015) claim that “the results are very similar to those reported in BFG (2013)” needs further nuance. Table 1 of BFG (2015) which replicates the original Table 4 of BFG (2013) is indeed quite similar. However, one key difference, which is not discussed by BFG (2015), is that the results in column 1, based on a revised composite indicator, do show changes as compared to the originally published results: the short-term effect of the composite indicator becomes insignificant upon the data correction, while the medium-term effect is now significant only at 10%, and not at 5% as previously shown. Thus, the principal finding of BFG (2015) that “an increase of one point in the labor market flexibility composite indicator increases the short-term effect of crises on unemployment by 0.3 percentage point, but reduces the medium-term impact by about 0.8 percentage point” is misleading, as it discusses only the magnitude of the coefficients, but not their significance. Second and related, the discussion of Table 1 suggesting that “among the sub-indicators, hiring and firing regulations and centralized collective bargaining remain the ones with the largest medium-term impacts” is also misleading, because estimations in columns 1-7 of Table 1 are based on different samples. Columns 3, 6, and 7 are based on larger and unchanged sample (these estimates are, in fact, simply a copy of the original results), while columns 1, 2, 4, and 5 are based on smaller and modified sample. The coefficients across these regressions are not comparable, as it is not clear to what extent it is the sample composition that drives their magnitude.
http://dx.doi.org/10.1016/j.jce.2015.11.002 0147-5967/© 2015 Published by Elsevier B.V. on behalf of Association for Comparative Economic Studies.
M. Aleksynska / Journal of Comparative Economics 43 (2015) 1148–1149
1149
Third, the readers should also be aware of the fact that the dependent variable in Table 1 column 2 is a hiring index, not minimum wages; and that the dependent variable in column 5 measures hours regulation and not mandated cost of hiring, as explained in my comment article. Since the estimations are done on the 2002-2008 sample, it is only the hiring regulation and hours regulation components that are at stake here, but not the minimum wages or the mandated cost of hiring. Similarly, the labels and the discussion of Figure 2 should name appropriately what the indicators actually measure: i.e., hiring index and hours regulations, but not minimum wages and cost of hiring. Clearly, policy implications are tremendous: it is not the same to suggest reforming hours of work (as embedded into hours regulation) versus social security or payroll taxes (as embedded into mandated cost of hiring). Last but not least, the newly identified reforms based on the corrected data still do not bring us closer to understanding what kinds of reforms actually took place. How many hiring and hours labour market reforms took place, as compared to the reforms of conscription; how many reforms are used to produce estimates for Figure 2? Answers to these questions would greatly help policy makers in search of the reforms that work. These uncovered changes in the results of BFG (2013) due to data corrections are unsurprising, and, if anything, they are reassuring. If accounting for serious data flaws had not led to any changes in the results, then not only the data, but also the appropriateness of the estimation method would need to be questioned. But because of these changes, it is important to have a nuanced reading and presentation of the new empirical findings. References Aleksynska, Mariya, 2015. Banking Crises, Labor Reforms and Unemployment: A Comment. Journal of Comparative Economics (forthcoming). Bernal-Verdugo, Lorenzo E., Furceri, Davide, Guillaume, Dominique, 2013. Banking Crises, Labor Reforms and Unemployment. Journal of Comparative Economics 41, 1202–1219. Bernal-Verdugo, Lorenzo E., Furceri, Davide, Guillaume, Dominique, 2015. Reply to “Banking Crises, Labor Reforms, and Unemployment: A Comment. Journal of Comparative Economics (forthcoming).