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Philipp Heimberger Profile picture
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30 Nov, 6 tweets, 3 min read
Does employment protection affect unemployment? My meta-analysis on this question is now published in "Oxford Economic Papers". The average (precision-weighted) effect is zero, but data and specification choices matter for reported effects. A thread: /1

academic.oup.com/oep/advance-ar…
In theory, the effect of employment protection on unemployment is ambiguous. Reported empirical findings are mixed. Qualitative surveys are potentially misleading, but using meta-analysis can help. /2
I construct a novel data set consisting of 881 observations on the effect of employment protection (EPL) on unemployment from 75 studies. Once we correct for (mild) publication selection bias, the average effect cannot be distinguished from zero. /3
The meta-regression analysis shows that data and specification choices explain parts of the variation of reported results. The choice of the EPL variable and unemployment variable as well as data averaging and controlling for product market regulation matter /4
There is no robust evidence for an overall adverse impact of employment protection on unemployment. The meta-evidence clearly rejects an across-the-board policy focus on strict EPL as a cause of increased unemployment. /5
Here is an ungated version of the paper: researchgate.net/publication/34…

And here are the data and code files for replicating all results from the paper:

github.com/heimbergecon/e…

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More from @heimbergecon

Philipp Heimberger Profile picture
27 Nov
The Economist argues: the fiscal stance should depend on the unemployment rate: "pledge not to tighten fiscal policy actively until the economy has crossed a defined threshold". Implementing this in the EU would be revolutionary. A thread: /1

economist.com/leaders/2020/1…
Interestingly, the origins of cycle-sensitive budgeting lie in a Keynesian approach to fiscal policy. In its original sense, cycle-sensitive budgeting was tailored to contribute to the engineering of full employment /2

ineteconomics.org/research/resea…
The concept was first proposed by Gunnar Myrdal, who wanted to allow the Swedish government to balance the budget over the entire business cycle, which was supposed to promote a fiscal policy capable of smoothening cyclical swings in the economy /3
Read 11 tweets
Philipp Heimberger Profile picture
26 Nov
Update output gap nonsense: My new column shows rising fiscal consolidation pressures in 🇩🇪 caused by new Commission estimates. Data thread: according to the Commission, German potential output will fall by €77 billion in 2021 compared to pre-Corona /1

wiiw.ac.at/n-470.html
This results in a downward revision in estimates of economic slack in 🇩🇪: The output gap in 2021 falls in the official Commission forecast to -2.7% in 2021. In view of the strong corona downturn this is implausible! Without the downward revision, the output gap would be -4.9% /2
As a result, the estimate of the "structural" budget deficit for the coming year increases by 1.2 % of GDP. About €42 billion of the fiscal deficit forecast is suddenly no longer attributed to economic weakness, but is considered "structural" /3
Read 12 tweets
Philipp Heimberger Profile picture
6 Nov
Output gap nonsense: European Commission is doing it again in its most recent forecast: producing crisis-driven, pro-cyclical downward estimates in economic slack (measured in terms of output gaps). This will reduce fiscal space once the fiscal rules are reactivated. A thread: /1
How does the COVID-19 shock affect the European Commission’s potential output estimates? In its Autumn 2020 forecast, the Commission systematically reduced its potential output forecast to a larger extent in countries that are predicted to suffer from a larger drop in GDP. /2
One additional percentage point in predicted losses of actual output is associated with a loss in potential output of about 0.6 percentage points (on average), suggesting that the revisions in PO-model estimates are again strongly related to changes in economic activity. /3
Read 8 tweets
Philipp Heimberger Profile picture
5 Oct
Last week, ECB president Lagarde acknowledged mismeasurement of output gaps. This seems a technical side note. In fact, it has huge implications for monetary and fiscal policy. Here is a thread on what it implies for EU fiscal policy-making and assessing the fiscal stance: /1
Lagarde: “revisions to potential output mistook cyclical changes for structural trends”. Implication: official estimates of what €Z economies should be able to produce without generating inflationary pressures have been systematically too pessimistic. /2

ecb.europa.eu/press/key/date…
Output gaps were large before Corona, implying severe underutilization of resources. Implication: Policy-makers should have been using more expansionary policy measures to stimulate production and employment to reduce big output gaps. /3
Read 17 tweets
Philipp Heimberger Profile picture
10 Aug
Die Einigung zum "EU-Wiederaufbaufonds" ist in zentralen Aspekten bahnbrechend und wird zur Erholung in schwer getroffenen Ländern beitragen, aber sie hat einen hohen politischen Preis. Meine Einschätzung ist heute bei @FESonline erschienen. Ein Thread /1

fes.de/progressive-wi… Image
Vor Corona wäre es sicherlich undenkbar gewesen, dass die EU in dieser Dimension zusätzliche Schulden auf der Grundlage von Garantien der Mitgliedstaaten aufnimmt, um temporär zusätzliche EU-Ausgabenprogramme zur Bekämpfung einer Wirtschaftskrise zu lancieren. /2
Zum ersten Mal wird ein EU-weites „sicheres Asset“ geschaffen, welches es Anleger_innen ermöglicht, die unterschiedlich risikobehafteten Anleihen der EU-Mitgliedstaaten zu vermeiden und direkt in EU-Anleihen zu investieren. /3
Read 14 tweets
Philipp Heimberger Profile picture
10 Aug
Commission announced: 1) EU fiscal rules remain suspended in 2021; 2) focus of reviewing the rules is on reducing reliance on output gap estimates. A thread on why changing these output gap estimates is essential to promote recovery from 2022 onwards: /1

ft.com/content/d7c41c… Image
The European Commission’s potential output model is the core technical backbone of EU fiscal surveillance. Model-based estimates are used for evaluating and supervising member states’ fiscal performance and underlie recommendations related to medium-term budgetary objectives. /2 Image
Given the importance of model-based estimates in the EU’s fiscal rules – avoiding pro-cyclical fiscal tightening in the near future will require that policymakers’ hands are not tied by overly pessimistic views on the development of potential output. /3
Read 17 tweets

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