Austerity policies work best in LMEs?

Austerity policies have been linked to rising unemployment in European countries, but what effect have policies aimed at liberalising labour markets had during the crisis? Alessandro Turrini finds that contrary to expectations, austerity policies may have been responsible for creating more unemployment in countries with stronger employment protection legislation. One potential reason for this is that while countries with more regulated labour markets have not experienced as many redundancies from austerity, they have also had far lower job creation levels.

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