Real Interest Rate and Labor Market Performance around the World

This article studies the effects of the real interest rate on labor market performance. Using a much larger sample of countries and more indicators of labor market performance than have been used in previous articles, it finds that a rise in the real interest rate increases the unemployment rate, raises the share of long-term unemployed, and reduces the employment rate. The magnitude of these effects is very small in the short run but much more pronounced-though still fairly small-in the long run. Young people are disproportionately affected. The results are robust to variations in specification.