John Schmitt

Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence

A rapidly expanding empirical literature has addressed the widely accepted claim that employment-unfriendly labor market institutions explain the pattern of unemployment across countries. The main culprits are held to be protective institutions, namely unemployment benefit entitlements, employment protection laws, and trade unions. Our assessment of the evidence offers little support for this orthodox view. The most compelling finding of the cross-country regression literature is the generally significant and robust effect of the standard measure of unemployment benefit generosity, but there are reasons to doubt both the economic importance of this relationship and the direction of causation. The micro evidence on the effects of major changes in benefit generosity on the exit rate out of unemployment has been frequently cited as supportive evidence, but these individual level effects vary widely across studies and, in any case, have no direct implication for changes in the aggregate unemployment rate (due to ``composition and ``entitlement effects). Finally, we find little evidence to suggest that 1990s reforms of core protective labor market institutions can explain much of either the success of the ``success stories or the continued high unemployment of the large continental European countries. We conclude that the evidence is consistent with a more complex reality in which a variety of labor market models can be consistent with good employment performance.

Is Globalization Undermining the Welfare State? The Evolution of the Welfare State in Developed Capitalist Countries during the 1990s

The authors analyze the evolution of macro-indicators of social and economic well-being during the 1990s in the majority of developed capitalist countries, grouped according to their dominant political traditions since the end of World War II. Their analysis shows that, despite the economic globalization of commerce and finance, “politics still matters” in explaining the evolution of the welfare states and labor markets in these countries; the impact of the globalization of financial capital in forcing reductions in the financial resources available for welfare state purposes has been exaggerated.

Explaining the Small Employment Effects of the Minimum Wage in the United States

type=main xml:id=irel12106-abs-0001> This paper reviews the most recent wave of research—roughly since 2000—on the employment effects of the U.S. minimum wage and concludes that the weight of evidence points to little or no employment response to modest increases. The paper then examines eleven possible adjustments to minimum-wage increases that may explain why the measured employment effects are consistently small. Given the relatively low cost to employers of modest increases in the minimum wage, these adjustment mechanisms appear to be sufficient to avoid employment losses, even for employers with a large share of low-wage workers.

The Rise in Job Displacement, 1991-2004

INVOLUNTARY ket. But, taken together, advance notification of layoffs, a wellfunctioning unemployment insurance system, adequately funded and appropriately targeted job training, and rapid overall job growth can greatly reduce the economic hardships facing workers who lose their jobs involuntarily. Unfortunately, the U.S. labor market generally gives workers little or no advance notice of layoffs.1 State-run unemployment insurance systems cover only a portion of workers lost incomes, for a limited period, and leave an important share of the unemployed without any coverage at all.2 Government and private training opportunities also fall far short of needs.3

Did Job Quality Deteriorate in the 1980s and 1990s

Between the end of the 1970s and the end of the 1990s, the U.S. economy, on net, created about 35 million new jobs.1 After 20 years of widening economic inequality, however, a heated debate has developed around the “quality” of many of these new jobs. This chapter seeks to evaluate the job quality debate, analyzing a range of relevant data, with a particular focus on developments in the 1990s.

Economic Efficiency versus Social Equality? The U.S. Liberal Model versus the European Social Model

This article begins by challenging the widely held view in neoliberal discourse that there is a necessary trade-off between higher efficiency and lower reduction of inequalities: the article empirically shows that the liberal, U.S. model has been less efficient economically (slower economic growth, higher unemployment) than the social model in existence in the European Union and in the majority of its member states. Based on the data presented, the authors criticize the adoption of features of the liberal model (such as deregulation of their labor markets, reduction of public social expenditures) by some European governments. The second section analyzes the causes for the slowdown of economic growth and the increase of unemployment in the European Union—that is, the application of monetarist and neoliberal policies in the institutional frame of the European Union, including the Stability Pact, the objectives and modus operandi of the European Central Bank, and the very limited resources available to the European Commission for stimulating and distributive functions. The third section details the reasons for these developments, including (besides historical considerations) the enormous influence of financial capital in the E.U. institutions and the very limited democracy. Proposals for change are included.