Labor Market Institutions Around the World

Abstract

This paper documents the large cross-country differences in labor institutions that make them a candidate explanatory factor for the divergent economic performance of countries and reviews what economists have learned about the effects of these institutions on economic outcomes. It identifies three ways in which institutions affect economic performance: by altering incentives, by facilitating efficient bargaining, and by increasing information, communication, and trust. The evidence shows that labor institutions reduce the dispersion of earnings and income inequality, which alters incentives, but finds equivocal effects on other aggregate outcomes, such as employment and unemployment. Given weaknesses in the crosscountry data on which most studies focus, the paper argues for increased use of micro-data, simulations, and experiments to illuminate how labor institutions operate and affect outcomes.

Regional origins of employment volatility: evidence from German states

“…Nevertheless, this proxy is incomplete for two reasons. First, empirical research generally finds it difficult to establish a strong link between employment protection laws and the overall rate of unemployment (Freeman 2007). …”

Institutional Features of Wage Bargaining in 23 European Countries, the US and Japan

“…There is a vast literature on the role of collectivisation, centralisation and coordination of wage bargaining in shaping labour market outcomes, wage levels, wage dispersion and wage flexibility. In a recent survey, Freeman (2007) presents three ways in which wage-setting institutions affect economic performance: they "alter incentives", they "facilitate efficient bargaining", and they "increase information, communication, and trust". Institutional arrangements related to the labour market may also modify the effect of monetary policy on inflation and unemployment.…”

Quelle est l'influence des négociations d'entreprise sur la structure des salaires ?

“…L'intérêt pour cette question remonte à la fin des années 1980 lorsque les économistes tentaient de comprendre pourquoi les Etats-Unis enregistraient de meilleures performances que les pays européens en termes de taux d'emploi et de croissance de la productivité (Bruno et Sachs, 1985 ;Calmfors et Driffill, 1988 ;Freeman, 2008).…”