Download this Paper Open PDF in Browser

Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence

73 Pages Posted: 24 Jan 2013  

David Howell

The New School - Robert J. Milano Graduate School of Management & Urban Policy; Bard College - The Levy Economics Institute

Dean Baker

Centre for Economic Policy Research (CEPR); International Labour Organization (ILO) - Policy Integration Department

Andrew Glyn

University of Oxford - Department of Economics

John Schmitt

Centre for Economic Policy Research (CEPR)

Abstract

A rapidly expanding empirical literature has addressed the widely accepted claim that employment-unfriendly labor market institutions explain the pattern of unemployment across countries. The main culprits are held to be protective institutions, namely unemployment benefit entitlements, employment protection laws, and trade unions. Our assessment of the evidence offers little support for this orthodox view. The most compelling finding of the cross-country regression literature is the generally significant and robust effect of the standard measure of unemployment benefit generosity, but there are reasons to doubt both the economic importance of this relationship and the direction of causation. The micro evidence on the effects of major changes in benefit generosity on the exit rate out of unemployment has been frequently cited as supportive evidence, but these individual level effects vary widely across studies and, in any case, have no direct implication for changes in the aggregate unemployment rate (due to "composition" and "entitlement effects"). Finally, we find little evidence to suggest that 1990s reforms of core protective labor market institutions can explain much of either the success of the "success stories" or the continued high unemployment of the large continental European countries. We conclude that the evidence is consistent with a more complex reality in which a variety of labor market models can be consistent with good employment performance.

Comments on this paper can be found at:
http://ssrn.com/abstract=2206513

Suggested Citation

Howell, David and Baker, Dean and Glyn, Andrew and Schmitt, John, Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence. Capitalism and Society, Vol. 2, Issue 1, Article 1, 2007. Available at SSRN: https://ssrn.com/abstract=2206526

David Howell (Contact Author)

The New School - Robert J. Milano Graduate School of Management & Urban Policy ( email )

New York, NY
United States
212-229-5434 (Phone)
212-229-5404 (Fax)

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504
United States

Dean Baker

Centre for Economic Policy Research (CEPR) ( email )

1015 18th St., NW, Suite 200
Washington, DC 20036
United States
202-293-5380 (Phone)
202-822-1199 (Fax)

International Labour Organization (ILO) - Policy Integration Department ( email )

4 route des Morillons
Geneva 22, 1211
Switzerland

Andrew Glyn

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 276700 (Phone)
+44 1865 793121 (Fax)

John Schmitt

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paper statistics

Downloads
322
Rank
78,029
Abstract Views
1,057