Institutions and laws in the labor market

This chapter examines the impact of wage-setting institutions and government policies on wages and employment, focusing on the OECD countries. There is considerable evidence that centralized collective bargaining, minimum wages and antidiscrimination policies raise the relative wages of the low paid. Evidence of the impact of these institutions and other policies such as mandated severance pay, advance notice or unemployment insurance is more mixed with some studies finding negative employment effects while others do not. This may reflect the adoption by many OECD countries of off-setting policies, such as public employment, temporary employment contracts and active labor market programs, which, while they may have reduced the adverse relative employment effects of their less flexible labor market institutions on the low skilled, appear not to have prevented high overall unemployment.