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Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?

  • Schettkat, Ronald

    ()

    (University of Wuppertal)

This paper uses data from 20 OECD countries to investigate the impact of welfare state institutions (especially employment protection, wage bargaining and work incentives) on the functioning of the labour market both theoretically and empirically. It shows that the impact of welfare state institutions is not as clear-cut as the deregulationists' view suggests. This result may be surprising against the background of the common view that welfare state measures cause European employment problems but it is in line with the outcomes of many other economic studies. The reasons for the ambiguous effects of welfare state institutions are manifold but the most important reason is the complexity of the impacts. There are many side-effects or second-round effects of welfare state institutions which, although often neglected, prove to be very important in the real ‘imperfect market’ world. Many welfare state institutions only have a clear-cut negative effect against the background of the theoretical perfect market model.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 696.

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Length: 44 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:iza:izadps:dp696
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  1. Ronald Schettkat, 2003. "Institutions in the Economic Fitness Landscape: What Impact Do Welfare State Institutions Have on Economic Performance?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(2), pages 27-33, October.
  2. Oschmiansky, Frank & Kull, Silke & Schmid, Günther, 2001. "Faule Arbeitslose? Politische Konjunkturen einer Debatte," Discussion Papers, Research Unit: Labor Market Policy and Employment FS I 01-206, Social Science Research Center Berlin (WZB).
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  7. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  8. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
  9. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May.
  10. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  11. Rowthorn, R E, 1992. "Centralisation, Employment and Wage Dispersion," Economic Journal, Royal Economic Society, vol. 102(412), pages 506-23, May.
  12. Akerlof, George A & Yellen, Janet L, 1985. "Can Small Deviations from Rationality Make Significant Differences to Economic Equilibria?," American Economic Review, American Economic Association, vol. 75(4), pages 708-20, September.
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  16. Esping-Andersen, Gosta & Regini, Marino (ed.), 2000. "Why Deregulate Labour Markets?," OUP Catalogue, Oxford University Press, number 9780199240524, March.
  17. Richard B. Freeman & Ronald Schettkat, 2000. "Skill Compression, Wage Differentials and Employment: Germany vs. the US," NBER Working Papers 7610, National Bureau of Economic Research, Inc.
  18. Rebecca M. Blank, 1994. "Introduction to "Social Protection versus Economic Flexibility: Is There a Trade-Off?"," NBER Chapters, in: Social Protection versus Economic Flexibility: Is There a Trade-Off?, pages 1-20 National Bureau of Economic Research, Inc.
  19. Soskice, David, 1990. "Wage Determination: The Changing Role of Institutions in Advanced Industrialized Countries," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 36-61, Winter.
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  21. Nickell, S.J. & van Ours, J.C., 1999. "The Netherlands and the United Kingdom : A European Unemployment Miracle?," Discussion Paper 1999-119, Tilburg University, Center for Economic Research.
  22. 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 C1-33, March.
  23. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-83, May.
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  25. Glyn, Andrew, 1995. "The Assessment: Unemployment and Inequality," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 1-25, Spring.
  26. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  27. Wood Júnior, Thomaz, 1995. "Workers," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 35(2), January.
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  34. repec:cup:cbooks:9780521049399 is not listed on IDEAS
  35. Ronald Schettkat, 1997. "Book Review," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 153(2), pages 434-435, June.
  36. Kerstin Pull, 2002. "Labour Market Regulation and Foreign Direct Investment: US multinationals in Germany and the UK," IAAEG Discussion Papers until 2011 200204, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
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