Fiscal consolidation and unemployment: does EPL matter?: A look at EU countries

Table 7 Impact of consolidations on job separation rates, distinguishing by EPL strictness

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
Dependent variable: job separation rate	Budget balance		Revenue		Expenditure		“Top-down” change in structural balance
	Action-based		Action-based		Action-based
Explanatory variables	13 EU countries, 1997-2009		13 EU countries, 1997-2009		13 EU countries, 1997-2009		21 EU countries, 1997-2009
	Low EPL	High EPL	Low EPL	High EPL	Low EPL	High EPL	Low EPL	High EPL
Separation rate (1 lag)	0.207	0.795**	0.233	0.794**	0.224	0.790**	0.608**	0.782**
	[1.293]	[14.15]	[1.351]	[15.35]	[1.395]	[11.74]	[4.938]	[17.48]
Fiscal policy variable	0.0662**	−0.00522	0.122**	−0.0315	−0.112**	−0.0226	0.0618**	−0.0369
	[5.454]	[−0.151]	[6.081]	[−0.573]	[−4.972]	[−0.370]	[3.635]	[−0.727]
Constant	0.588**	0.156*	0.701**	0.155*	0.703**	0.0114	0.207+	0.0207
	[4.401]	[3.654]	[4.737]	[3.781]	[5.040]	[0.191]	[2.009]	[0.209]
Observations	66	49	66	49	66	49	104	81
R-squared	0.566	0.842	0.566	0.843	0.551	0.842	0.669	0.766
Number of countries	7	6	7	6	7	6	11	10

+, *, ** denote statistical significance at the 10, 5, 1 per cent level respectively. T tests are reported in square brackets.
Specification. All regressions include country and year fixed effects.
Estimation method. Action-based fiscal policy: fixed effect panel OLS. Top-down fiscal policy measures: fixed effect panel instrumental variables (the fiscal policy variable is instrumented with its own lag, the lagged output gap, and the lagged government debt/GDP ratio). Standard errors are robust with respect to hetereoschedasticity and non-independence within country clusters.
Legend. Fiscal variables: see footnote to Table 1. The grouping of countries with respect to the OECD EPL indicator for permanent employment is built on the basis of the median country-specific average value of the indicator over the sample period.