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Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?

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  • Ronald Schettkat

Abstract

This paper uses data from 20 OECD countries to investigate the impact of welfare state institutions (especially employment protection, wage bargaining and work incentives) on the functioning of the labour market both theoretically and empirically. It shows that the impact of welfare state institutions is not as clear-cut as the deregulationists' view suggests. This result may be surprising against the background of the common view that welfare state measures cause European employment problems but it is in line with the outcomes of many other economic studies. The reasons for the ambiguous effects of welfare state institutions are manifold but the most important reason is the complexity of the impacts. There are many side-effects or second-round effects of welfare state institutions which, although often neglected, prove to be very important in the real ‘imperfect market’ world. Many welfare state institutions only have a clear-cut negative effect against the background of the theoretical perfect market model.

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Bibliographic Info

Article provided by Ifo Institute for Economic Research at the University of Munich in its journal DICE.

Volume (Year): 1 (2003)
Issue (Month): 2 (October)
Pages: 27-33

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Handle: RePEc:ces:ifodic:v:1:y:2003:i:2:p:27-33

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Keywords: Sozialstaat; Institutionalismus; Wirtschaftswachstum; Beschäftigungseffekt; Arbeitsmarktflexibilisierung; Kündigungsschutz; Tarifpolitik; Lohnstruktur; OECD-Staaten; Welfare state; Institutional economics; Economic growth; Employment effect; Labour market;

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Cited by:
  1. Eckhard Hein & Achim Truger, 2005. "What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or by macroeconomic mismanagement?," Macroeconomics 0501007, EconWPA.
  2. Eichhorst, Werner & Feil, Michael & Braun, Christoph, 2008. "What Have We Learned? Assessing Labor Market Institutions and Indicators," IZA Discussion Papers 3470, Institute for the Study of Labor (IZA).
  3. Schettkat, Ronald, 2002. "Institutions in the economic fitness landscape: What impact do welfare state institutions have on economic performance?," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 02-210, Social Science Research Center Berlin (WZB).
  4. Gunther Tichy, 2005. "Die ,Neue Unsicherheit: als Ursache der europäischen Wachstumsschwäche," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(3), pages 385-407, 08.
  5. Eckhard Hein & Achim Truger, 2005. "Macroeconomic policies, wage developments, and Germany’s stagnation," Macroeconomics 0508015, EconWPA.
  6. Hein, Eckhard & Truger, Achim, 2004. "What ever happened to Germany? Is the decline of the former European key currency country caused by structural sclerosis or macroeconomic mismanagement?," Darmstadt Discussion Papers in Economics 37280, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).

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