The Quality of Labor Relations and Unemployment

32 Pages Posted: 3 Nov 2008

See all articles by Olivier J. Blanchard

Olivier J. Blanchard

National Bureau of Economic Research (NBER); Peter G. Peterson Institute for International Economics

Thomas Philippon

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2006

Abstract

There is a clear negative relation across OECD countries between measures of the quality of labor relations and unemployment. We argue that conflictual labor relations cause high unemployment, and we propose a model to think about this issue. Empirically,we use historical evidence from the 19th century to construct an instrument for current labor relations and establish causality. Theoretically, we consider an economy where asymmetric information can result in bargaining failures, inefficiencies and high unemployment in equilibrium. These inefficiencies can however be alleviated by higher trust, sustained through repeated interactions between firms and workers. We think of countries with different labor relations as playing different equilibria of the same repeated game, and we use our model to interpret cross-country and time series facts about labor relations, strikes, and unemployment in OECD countries since the early 1970s.

Suggested Citation

Blanchard, Olivier J. and Philippon, Thomas, The Quality of Labor Relations and Unemployment (November 2006). NYU Working Paper No. FIN-06-038. Available at SSRN: https://ssrn.com/abstract=1293660

Olivier J. Blanchard (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Thomas Philippon

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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