Chapter 9: Unemployment and labour market flexibility: a misplaced question?
9. Unemployment and labour market ﬂexibility: a misplaced question? Donatella Gatti1 1. INTRODUCTION A major puzzle in current economic debate stems from the differences in observed rates of unemployment across developed countries. Economic analysis has generally focused on divergence in labour market organization (and ﬂexibility) as the most plausible institutional explanation of this phenomenon (see, for instance, Layard et al., 1991). Labour market ﬂexibility, in turn, is related to structural rigidities characterizing the wage bargaining system or the social security system. Therefore, from this perspective, the rise of (direct and indirect) workers’ social protection and the improvement in working conditions are seen as essential causes of increasing unemployment rates throughout western Europe (Layard et al., 1991; OECD, 1986). Hence, high unemployment must be understood as a ‘fair price’ that Europe has to pay in order to be able to keep, as a counterpart, a high workers’ protection legislation (CEPR, 1996). In contrast to this, a growing body of literature has been devoted to deﬁning a more comprehensive approach to the comparative analysis of institutional arrangements and performances (see Aoki, 1986; Boyer, 1987; Soskice, 1990; Streeck, 1996). The main idea underlying contributions in this ﬁeld is that a variety of (forms of) capitalism exists which deﬁnes several institutional models respectively characterizing existing industrialized countries. The main elements of these institutional settings involve both the internal organizational features of the ﬁrm and the whole environmental structure (that is, relationships with other ﬁrms and the ‘regime of competition’, nature and size...
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