Unemployment-GDP Growth Nexus and Labor Market Regulations: Evidence from Oil-Producing Countries

Abstract

This paper examines the effect of labor market regulations (LMR) on the unemployment rate for 17 oil-producing countries from 2000 to 2019. The panel corrected standard errors (PCSE), and the panel autoregressive distributed lag (ARDL) estimators are employed in this regard. The negative effect of output growth on the unemployment rate was confirmed. This study shows that a more flexible or less protective labor market in oil-producing countries is generally associated with higher unemployment rates. This result was confirmed in the static PCSE estimation. However, both results indicated that increased GDP growth in more flexible labor regulations is associated with higher unemployment rates. These findings suggest that there is a need for more empirical evidence according to the hypothesis that higher labor market flexibility leads to decreases in the unemployment rate. Therefore, the implementation of labor market regulations, whether more flexible or more rigid regulations are needed, should be under consideration of the overall economic conditions.