We investigate the problem of simultaneous determination of labour market institutions and outcomes in single equation multi-country estimations by presenting an empirical analysis of unemployment and union density in 20 OECD countries. When explicitly modelling potential endogeneity and heterogeneity, our results suggest that unions contribute to explaining unemployment in different ways than previously thought. In addition, the relationship between unemployment and union density is heterogeneous across countries, depending on the way in which income support for the unemployed is organized.
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