An Investigation on the Relationship between Government Size and Unemployment Rate: Evidence from OECD Countries

It is widely accepted that size of government is an important determinant of labor market performance. Therefore, understanding the effects of government size on employment is both empirically and theoretically critical. Recent empirical studies indicate that the size of government is inversely related to labor market performance. This study examines the relationship between government size and unemployment rate for 17 OECD countries over the period of 1990-2007 using panel cointegration analysis. The empirical findings indicate a statistically significant relationship between size of government and unemployment rates.

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An Investigation on the Relationship between Government Size and Unemployment Rate: Evidence from OECD Countries

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