36. Institutional Drivers of NAIRU (máj 2016)

We estimate NAIRUs and effects of institutional factors driving them for a group of 20 EU countries for the period 2000 - 2014. Employing Kalman filter on the Phillips curve relationship we first estimate the NAIRU for each country. Then, we regress the estimated NAIRUs on a set of institutional and control variables using various panel estimation techniques. Several robustness checks were performed including univariate correlations and Bayesian model averaging. Results show that the NAIRU is driven by the active labour market policy expenditures, rigidness of temporary jobs market, external mobility, and union density. Surprisingly, tax wedge and unemployment benefit replacement rate are insignificant. Policy recommendations for Slovakia build on a substantial increase of expenditures on effective active labour market policies, measures increasing mobility of the workforce and on a more flexible temporary jobs market.