Pro-market institutions and labor market outcomes: A panel-data analysis of U.S. metropolitan areas

We expand previous U.S. state-level research on the relationship between pro-market institutions and labor market outcomes by examining this relationship at the U.S. metropolitan-area level. Using panel data for 1992–2012 in a fixed-effects model, we investigate the effect of pro-market institutions on the unemployment rate, labor force participation rate, employment-population ratio, and employment growth across 366 U.S. metropolitan areas. The results indicate that pro-market institutions are associated with a lower unemployment rate, higher employment-population ratio, and faster employment growth. These results suggest that local-area policies are important for achieving favorable labor market conditions at the local level.