Edited by Mark Setterfield
Chapter 15: Feasible Egalitarianism: Demand-led Growth, Labour and Technology
C.W.M. Naastepad and Servaas Storm 1 Introduction When it comes to analysing unemployment and, more generally, macroeconomic performance in the OECD, the standard – mainstream – analysis is predicated upon a “one-size-fits-all” approach – usually some variant of the non-accelerating inflation rate of unemployment (NAIRU) model – and does not recognize, let alone incorporate, systemic differences between OECD economies. In this approach, high unemployment (and lacklustre macro performance in general) is a result of labour market rigidities, caused by “excessive” regulation. It follows that, to reduce unemployment and revive growth, labour markets have to be deregulated and welfare states have to be scaled down. There thus exists an in-built conflict (or trade-off) between economic growth and low unemployment, on the one hand, and egalitarian outcomes (based on high wage growth and relatively pro-worker labour market regulation), on the other hand. Egalitarianism, in other words, comes at the cost of slow growth, high unemployment and limited technological dynamism. However, although the NAIRU view that labour market regulation explains OECD unemployment has become widely accepted, particularly in policy circles, it is by no means universally accepted. Serious problems remain. Specifically, empirical evidence suggesting an association between unemployment and regulatory institutions in OECD labour markets has been shown to be statistically non-robust (Baker et al., 2005a, 2005b; Baccaro and Rei, 2005; Howell et al., 2006). We argue that this non-robustness (or weakness) of the association between unemployment and regulation must be accepted as a stylized fact in itself, because it reflects the fact that policies of real...
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