Fatih Macit / Journal of Economic Research 17 (2012) 49–59 49 Natural Rate of Unemployment and the Flexibility of the Labor Markets Fatih Macit 1 Suleyman Sah University, Turkey Abstract In this paper I investigate how the natural rate of unemployment is affected from various institutions of the labor market. I find that union density, benefit replacement rate, expenditure on ac- tive labor market policies per unemployed person, and employ- ment protection legislation play a significant role in explaining the differences in long-term unemployment rates across the OECD countries. Besides that, I also look at whether the vacancy rate and the participation rate are affected from the structure of the la- bor markets. An increase in the employment protection legislation index and union density generate a decline in the vacancy rate. As far as the participation rate is concerned, an increase in the employment protection legislation index and benefit replacement rate increase the inactivity rate, whereas an increase in expen- diture on active labor market policies causes an increase in the participation rate. Keywords : Labor Market Institutions; Natural Rate of Unem- ployment JEL classification : E24; J64 1 Department of Economics, Suleyman Sah University, Istanbul, TURKEY, 34865, E-mail: fmacit@ssu.edu.tr. First received, July 31, 2011; Revision received, December 6, 2011; Accepted, December 25, 2011.