Can institutional reform reduce job destruction and unemployment duration? Yes it can

We read search theory’s equilibrium conditions for unemployment as an iso-unemployment curve. A country’s position along the curve reveals its preferences over the destruction–duration mix. Using a panel of 20 OECD countries over 1985–2009, we find that the employment protection legislation and collective bargaining coverage have opposing effects on the job destructions and unemployment durations, while the remaining key institutional factors affect one or another. Implementing the right reforms could reduce job destruction rates by about 0.05–1.3 % points and unemployment rates by up to 4 % points depending on the country considered.