Edited by Geoffrey M. Hodgson
Chapter 9: Institutions and employment performance in different growth regimes
Eileen Appelbaum and Ronald Schettkat* INTRODUCTION Although the OECD countries are all capitalist market economies, their institutional settings as well as their economic performance varied substantially in the 1970s and 1980s. Therefore, whether institutions matter is not controversial in economics, but rather the question is which institutional arrangements best support the performance of the economy. Many economists became interested in understanding how institutional differences inﬂuence economic performance. However, the industrialized economies varied less with respect to GDP growth than with respect to employment (see Figure 9.1). This suggests that differences in GDP growth rates are not sufﬁcient to explain variations in labour market performance. One of the most obvious candidates for the explanation of differing economic performance in market economies is the wage-bargaining system, which differs remarkably between countries. 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2.61 2.07 1.08 0.7 1.32 1.12 1970s 1980s GDP 1970s 1980s Empl./population 1970s 1980s Unemployment Source: Based on OECD statistics. Figure 9.1 Standard deviations of growth rates of GDP, employment to population ratios, and unemployment rates 149 150 Varieties of capitalism Wage-bargaining can take place at several levels. At one extreme, individual companies and employees may negotiate the wage (decentralized bargaining), whereas at the other extreme, national unions and employers’ associations may bargain over wages for a whole country (centralized bargaining). Countries can occupy any position on this continuum. Traditionally economists favoured the decentralized model of wage-bargaining because it is best suited to achieving efﬁcient allocation in perfectly competitive markets. But...
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