Cultural, political and economic roots of the labor market institutional framework in the OECD and post-socialist countries

Research background: The literature indicates that labor market institutions are determined by cultural, political and economic factors, but does not give explicit conclusions which of these vast group of factors dominates. Purpose of the article: The goal of this study is to empirically assess whether cultural and political factors dominate over economic factors in shaping the labor market institutional framework in the OECD and post-socialist countries. Methods: This framework can be measured by a vast group of indicators. We use 10 such variables that describe the group of 47 post-socialist and OECD countries (that did not experience economic transition) in the years 2005–2009. These indicators allow to construct one Employment Efficiency Index which explains almost 47% of the employment rate heterogeneity in the years 2010–2015. In the second step, the Employment Efficiency Index is regressed on 7 uncorrelated and standardized components that describe the cultural, political and economic characteristics of the analyzed countries in the years 1995–2004 and the Chow test is conducted in order to determine whether they influence the Index with the same strength in post-socialist and non-transition OECD countries. Findings & Value added: The obtained results show that cultural and political factors have a stronger influence on labor market institutions. Moreover, the estimates reveal that the countries which experienced weak labor market performance in the period 1995–2004 did not make their institutional framework more pro-employment in the following years and, in consequence, also recorded low values of the employment rate in the period 2010–2015. Such result suggests that economic factors occurred to be on average an insufficient trigger for labor market reforms in the group of analyzed countries. Finally, the Chow test revealed that this conclusion is applicable to both post-socialist and non-transition OECD countries.