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How structural reforms of labor markets contribute to a productivity crisis. An essay on neoclassical versus evolutionary efficiency

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  • Alfred Kleinknecht

    (Kwansei Gakuin University, Emeritus Professor of Economics of TU Delft (The Netherlands) and Visiting Professor, School of Economics)

Abstract

Structural reforms of labor markets, as proposed by supply-side economists, are a cause of the post-2005 productivity crisis in the Triad (USA, EU, Japan). Structural reforms removed labor-market rigidities that were useful for innovation. Labor markets that work better (in a neoclassical view) are working worse from an evolutionary innovation perspective. Negative effects are worst if innovation requires a highly cumulative knowledge base. Low productivity growth leads to a labor-intensive growth path and hence to tighter labor markets. The latter can increase wage costs, thereby enhancing the diffusion of process technology and a return to higher productivity growth. Innovation and productivity would also be supported by more protective labor market institutions.

Suggested Citation

  • Alfred Kleinknecht, 2026. "How structural reforms of labor markets contribute to a productivity crisis. An essay on neoclassical versus evolutionary efficiency," Journal of Evolutionary Economics, Springer, vol. 36(1), pages 1-16, April.
    • Handle: RePEc:spr:joevec:v:36:y:2026:i:1:d:10.1007_s00191-025-00941-6
    DOI: 10.1007/s00191-025-00941-6
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    References listed on IDEAS

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    1. Hoxha, Sergei & Kleinknecht, Alfred, 2020. "When labour market rigidities are useful for innovation. Evidence from German IAB firm-level data," Research Policy, Elsevier, vol. 49(7).
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    Keywords

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    JEL classification:

    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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