Examining European Business Environments And Labour Markets. A Country-Clustering Proposal

In 2010 the European Commission presented the Europe 2020 strategy with a focus on smart, sustainable and inclusive growth. Linking one of the agenda’s main targets, i.e. increasing the employment rate among the European Union’s countries, with the current policy liberalization debate, the present study analyses the business environment and labour market policies for 30 European countries and provides an empirical classification of the two based on 2013 indicators. The most commonly approached labour market output is the unemployment rate. Thus a first section of this paper introduces the reader into the previous researches conducted on its evolution in the liberalization policy context, i.e. the impact of the labour market and business environment factors on the unemployment rate’s series. Further on, it presents a classical classification of the European labour market regimes as proposed by the literature. Grounded on a quantitative research paradigm and a positivist philosophy, the paper follows the existing literature and extends the current classification frameworks, proposing two country groupings based on business and labour market related factors. The analysis is conducted through exclusive clustering methods. As such, six clustering methodologies are applied (Ward, Exact Maximum Likelihood, Flexible-Beta Method, McQuitty’s Similarity Analysis, Single Linkage and K-means). Three country-clusters are emphasized for both analyses performed (business environment and labour market). No cluster emphasized purely liberalized policies, neither purely tight ones, but rather different mixtures of the two. The clustering aims at providing a common framework for analysing different markets’ outputs and assessing the strengths and weaknesses of different policy models. An exemplification of its utility is provided in the end section of the paper by analysing the cross-country differences in two highly traced outputs, i.e. unemployment rate and job vacancy rate. The regime-based cross-country comparison tests for the existence of a preferred model by searching for a model that systematically outperforms the others.