The Quality of Labor Relations and Unemployment

In countries where wages are primarily set by collective bargaining, the effects on unemployment of changes in the economic environment depend crucially on the speed of learning of unions. This speed of learning is likely to depend in turn on the quality of the dialogue that unions have with firms, on what can more generally be called the quality of labor relations. In this paper, we examine the role this quality of labor relations has played in the evolution of unemployment across European countries over the last 30 years. We conclude that it has played an important role: Countries with worse labor relations have experienced higher unemployment. This conclusion remains even after controlling for labor institutions.

Macroeconomic policies, wage developments, and Germany's stagnation

The paper fundamentally challenges the institutional sclerosis explanation of the present German economic stagnation. Instead we present a macroeconomic explanation focusing on the combined effects of too restrictive monetary policies, too restrictive and sometimes pro-cyclical fiscal policies and overly moderate wage policies in Germany since the mid 1990s. This view is broadly consistent with modern macroeconomics and with empirical data. From this perspective we finally argue that Germany urgently needs more expansive fiscal and monetary policies in the short run, and that in the medium run the conditions for nominal wage growth in Germany according to the sum of long run national productivity growth and the ECB's inflation target have to be improved. Further pursuing a policy of structural reforms with respect to the labour market and the social benefit system in combination with a restrictive macroeconomic policy mix, however, will prolong Germany's economic stagnation and will considerably increase the risk of deflation.monetary policy, fiscal policy, structural reform

Macroeconomic policies, wage developments, and Germany’s stagnation

The paper fundamentally challenges the institutional sclerosis explanation of the present German economic stagnation. Instead, we present a macroeconomic explanation focusing on the combined effects of too restrictive monetary policies, too restrictive and sometimes pro- cyclical fiscal policies and overly moderate wage policies in Germany since the mid 1990s. This view is broadly consistent with modern macroeconomics and with empirical data. From this perspective we finally argue that Germany urgently needs more expansive fiscal and monetary policies in the short run, and that in the medium run the conditions for nominal wage growth in Germany according to the sum of long run national productivity growth and the ECB’s inflation target have to be improved. Further pursuing a policy of structural reforms with respect to the labour market and the social benefit system in combination with a restrictive macroeconomic policy mix, however, will prolong Germany’s economic stagnation and will considerably increase the risk of deflationWages, macroeeconomic policies, Germany

Welfare regimes and the incentives to work and get educated

This paper examines whether differences in welfare regimes shape the incentives to work and get educated. Using microeconomic data for more than 100,000 European individuals, the results show that welfare regimes make a difference for wages and education. First, people- and household-based effects (internal returns to education and household wage and education externalities) generate socioeconomic incentives for people to get an education and work, which are stronger in countries with the weakest welfare systems, i.e. those with what is known as 'Residual' welfare regimes (Greece, Italy, Spain and Portugal). Second, place-based effects, and more specifically differences in regional wage per capita and educational endowment and in regional interpersonal income and educational inequality, also influence wages and education in different ways across welfare regimes. Place-based effects have the greatest incidence in the Nordic Social-Democratic welfare systems. These results are robust to the inclusion of a large number of people- and place-based controls.education; employment; wages; welfare; regions; European Union

The political economy of meritocracy: a post-Kaleckian, post-Olsonian approach to unemployment and income inequality in modern varieties of capitalism

The 'big trade-off', described by Arthur Okun some thirty years ago, is back again. Equality or efficiency, or to put it differently again: modern highly developed economies and societies have to choose between the Scylla of income inequality or the Charybdis of unemployment. Furthermore, it looks like the continental European economies - foremost Germany and France - sided with more egalitarian ends accepting higher unemployment whilst the liberal economies such as the United States and the United Kingdom choose higher inequality for lower unemployment. In this paper it is argued, that the trade-off is not a supply-side necessity to maintain work effort in a situation of incomplete contracts, but is a politico-economic issue of particular interest groups to seek rents. However, unlike in Mancur Olson's seminal approach, it is not the trade unions which are forming distributional coalitions on the labour market but rather the meritoracy which is happy to use Keynesian-type demand management in order to advance their material interests by pursuing a 'Meritocratically Optimal Rate of Unemployment' (MORU). --Unemployment,Income inequality,Political Economy

Labour market institutions in Hungary with a focus on wage and employment flexibility

It is widely believed today, that the operation of the labour markets is influenced by institutional factors, affecting macroeconomic adjustment in response to shocks. In this way, labour market institutions affect both cyclical and long-term growth and inflation performance of an economy. The aim of our paper is to review the operation of Hungarian labour market institutions from the point of view of labour market flexibility and find its place in international comparison in the light of existing stock of knowledge on the subject. We describe the institutional setup of the labour markets through seven dimensions (unemployment generosity, tax wedge, active labour market policies, employment protection legislation, product market regulation, union density and coverage and wage bargaining institutions) for which internationally comparable data are available. We conclude that the Hungarian labour market institutions are rather flexible in EU-comparison. However, tax wedge is high and the active labour market policies still perform poorly, both contributing to weak employment.wage flexibility, unemployment, labour market institutions, product market regulation, policy complementarity.

What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or macroeconomic mismanagement?

This paper challenges the institutional sclerosis view of the German crisis according to which rigid labour markets and generous welfare state institutions have driven Germany into its position as "Europe's sick man". In general, the view is not convincing, because the underlying hypotheses about the effects of labour market regulation and welfare state institutions on employment and growth cannot unambiguously be derived from modern labour market theory and are at least partially at odds with accepted empirical findings. In particular, the explanation is unconvincing, because in international comparison Germany's labour market and welfare state institutions are simply not as sclerotic as often supposed. In most of the aggregate indicators for structural rigidities Germany is not worse than the average OECD or EU country. Moreover, there is a macroeconomic explanation focusing on the combined effects of restrictive and pro-cyclical monetary, fiscal and wage policies in Germany that is broadly consistent with modern macroeconomic theory and is supported by empirical data.

What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement?

This paper challenges the institutional sclerosis view of the German crisis according to which rigid labour markets and generous welfare state institutions have driven Germany into its position as „Europe’s sick man“. In general, the view is not convincing, because the underlying hypotheses about the effects of labour market regulation and welfare state institutions on employment and growth cannot unambiguously be derived from modern labour market theory and are at least partially at odds with accepted empirical findings. In particular, the explanation is unconvincing, because in international comparison Germany’s labour market and welfare state institutions are simply not as sclerotic as often supposed. In most of the aggregate indicators for structural rigidities Germany is not worse than the average OECD or EU country. Moreover, there is a macroeconomic explanation focusing on the combined effects of restrictive and pro-cyclical monetary, fiscal and wage policies in Germany that is broadly consistent with modern macroeconomic theory and is supported by empirical data.Labour market institutions, macroeconomic policy, employment, Germany, Europian Monetary Union

The political economy of unemployment, labour market institutions and macroeconomic policies in open economies: the cases of Germany and the Netherlands in the 1980s and 1990s

The question that this thesis addresses is how western European countries with regulated labour markets managed to reduce their unemployment rates in the 1980s and 1990s. Most of the accounts in mainstream economics literature have been trying to explain this turnaround in performance in terms of labour market reforms that were undertaken in the direction of deregulation and by stressing potential interactions between such reforms in labour market policies, backing their claims with econometric evidence that is usually not robust. This thesis takes a different approach both theoretically and empirically. Theoretically, it develops the hypothesis that in open economies, coordinated collective wage bargaining can lead to moderate wage/price outcomes in the presence of conservative/stability oriented macroeconomic policies even in the presence of generous labour market protection policies. Moreover, in countries with regulated labour markets, the effectiveness of moderate bargaining outcomes and labour market reforms in combating unemployment will depend on the size and openness of the economy: the smaller and more open an economy is, the more effective moderate bargaining outcomes and labour market reforms will be in reducing the equilibrium rate of unemployment. This hypothesis is an alternative to the ‘deregulation thesis’ rather than a competing one. This hypothesis is explored and further qualified in this thesis through qualitative comparative analysis-QCA with fuzzy-sets and the detailed study of the cases of the Netherlands and Germany in the 1980s and the 1990s. The upshot of the analysis of this thesis is that the effects of labour market policies and institutions on labour market performance should be considered within the context of macro-level institutions (e.g. macroeconomic policies) and characteristics (e.g. openness to trade) if we want to accurately assess the need to reform them