Labor Market Institutions and Unemployment: Assessment of the Cross‐Country Evidence

Dean Baker, Andrew Glyn, David R. Howell and John Schmitt

in Fighting Unemployment

Published in print February 2005 | ISBN: 9780195165845
Published online July 2005 | e-ISBN: 9780199835515 | DOI:
 Labor Market Institutions and Unemployment: Assessment of the Cross‐Country Evidence

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Chapter 3 takes up the question of the robustness of the cross-country evidence for the orthodox claim that labor market institutions explain the pattern of unemployment across the affluent countries. A detailed survey of the most influential cross-country statistical studies finds a wide range of results that are highly sensitive to the nature of the variables, the time period, and the econometric method employed. Simple scatter plots of unemployment against six standard measures of labor market institutions for five-year periods between 1980 and 1999 show no significant relationships. In their multivariate tests, which follow standard approaches, the authors find weak and even perverse effects of the standard institutional variables. They conclude that “the empirical case has not been made that could justify the sweeping and unconditional prescriptions for labor market deregulation which pervade much of the policy discussion.”

Keywords: welfare state; labor market; regulation; deregulation; unemployment; employment; labor market institutions; unemployment benefits; employment protection

Chapter.  16926 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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