Generality, State Neutrality and Unemployment in the OECD
AbstractAccording to Buchanan and Congleton (1998), the generality principle in politics blocks special interests. Consequently, the generality principle should thereby promote economic efficiency. This study tests this hypothesis on wage formation and labor markets, by investigating whether generality defined as state neutrality could explain employment performance among OECD countries during 1970-2003. We identify three types of non-neutrality as concerns unemployment. These include the level or degree of government interference in the wage bargaining process over and above legislation which facilitate mutually beneficial wage agreements, the constrained bargaining range (meaning the extent to which the state favors or blocks certain outcomes of the bargaining process), and the cost shifting (which relates to state interference shifting the direct or indirect burden of costs facing the parties on the labor market). Our overall hypothesis is that non-neutrality or non-generality increases unemployment rates. The empirical results from the general conditional model suggest that government intervention and a constrained bargaining range clearly increase unemployment, while a few of the cost shifting variables have unexpected effects. The findings thus give some, but definitely not unreserved, support for the generality principle as a method to promote economic efficiency. One implication may be that the principle should be amended by other requirements if the political process indeed shall be able to promote economic efficiency.
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Bibliographic InfoPaper provided by Seoul National University; Technology Management, Economics, and Policy Program (TEMEP) in its series TEMEP Discussion Papers with number 200931.
Length: 24 pages
Date of creation: Nov 2009
Date of revision: Nov 2009
generality; state neutrality; efficiency; unemployment; wage bargaining; cost shifting; OECD;
Other versions of this item:
- Karlson, Nils & Box, Marcus & Heshmati, Almas, 2008. "Generality, State Neutrality and Unemployment in the OECD," Ratio Working Papers 124, The Ratio Institute.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
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