60 Pages Posted: 5 Jun 2003
Date Written: May 2003
We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.
JEL Classification: J8, K31, P51
Suggested Citation: Suggested Citation
Botero, Juan Carlos and Djankov, Simeon and La Porta, Rafael and Lopez de Silanes, Florencio and Shleifer, Andrei, The Regulation of Labor (May 2003). Available at SSRN: https://ssrn.com/abstract=408480 or http://dx.doi.org/10.2139/ssrn.408480