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Structural Unemployment: How Important Are Labour Market Policies and Institutions?

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  • Gordon Betcherman

Abstract

The variation in unemployment rates across OECD countries has often been interpreted as clear evidence that labour policies and institutions matter a great deal. The basis of this argument (most frequently applied to European countries but also to Canada) is that high payroll taxes, rigid labour regulations, and unresponsive union contracts inflate the cost of labour and that generous welfare programs reduce work incentives. This paper reviews the international empirical research evaluating the unemployment impacts of these labour policies and then considers the results in the Canadian context. The results suggest that the effect of different labour market policies and institutions on unemployment is by no means a simple as the as the conventional wisdom suggests. At any rate, after the reforms of the past 15 years, it is hard to argue on the basis of the empirical evidence that relatively high levels of unemployment in Canada are primarily due to labour market inflexibility resulting from our policies and institutions. In the final analysis, a credible explanation for Canada's unemployment record must look beyond unemployment insurance, taxes, unions, and labour law.

Suggested Citation

  • Gordon Betcherman, 2000. "Structural Unemployment: How Important Are Labour Market Policies and Institutions?," Canadian Public Policy, University of Toronto Press, vol. 26(s1), pages 131-140, July.
  • Handle: RePEc:cpp:issued:v:26:y:2000:i:s1:p:131-140
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    References listed on IDEAS

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    1. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
    2. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages 1-33, March.
    3. David Neumark, 1999. "The Employment Effects of Recent Minimum Wage Increases: Evidence from a Pre-specified Research Design," NBER Working Papers 7171, National Bureau of Economic Research, Inc.
    4. Nickell, Stephen, 2001. " The Labour Market Consequences of Technical and Structural Change: Introduction," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(0), pages 617-627, Special I.
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    Cited by:

    1. Emilian Dobrescu, "undated". "Integration of Macroeconomic Behavioural Relationships and the Input-output Block (Romanian Modelling Experience)," EcoMod2006 272100018, EcoMod.
    2. Independent Evaluation Group, 2009. "Earnings Growth and Employment Creation," World Bank Publications, The World Bank, number 24116.
    3. Alka obadić & Sanja Porić, 2008. "The coordination between education and employment policies," EFZG Working Papers Series 0802, Faculty of Economics and Business, University of Zagreb.

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