An informal sector forms, because the alternative of exchange through the formal economy is comparatively expensive. So, I thought that the size of the informal sector (as a percentage of GDP) serves as a decent proxy for the the additional transaction costs imposed by government — these are the supply-side issues that some economists say hold back economic recovery. The graph above shows the relationship between estimated sizes of informal sectors for 21 OECD countries for 2007 (the most recent data I can find) and the 2009 average unemployment rate.
An alternative way of giving a superficial look at the impact of these transaction costs is to compare the 2012 Heritage labor freedom index and the respective current unemployment rates of the same 21 OECD countries. A larger number on the labor freedom index indicates greater freedom.
Both graphs show a relationship that seems to support the supply-side explanation of unemployment. But, I’m not sure the relationship is very strong (excluding outliers, the slope is probably closer to zero).