Labour Market Regulation and Productivity

 A useful reference; a methodologically sophisticated attack on the core neo liberal belief that labour market regulation undermines efficiency.

Why labour market regulation may pay off: Worker motivation, co-ordination and productivity growth

by Servaas Storm & C.W.M. Naastepad

ILO Economic and Labour Market Paper 2007/4


The impact of labour market regulation on labour productivity growth is ambiguous: on the one hand, regulation raises labour adjustment costs, which negatively affects productivity; but on the other hand, regulation may (for various reasons) raise worker motivation and commitment and (by means of wage bargaining co-ordination) stimulate labour-saving technological progress, thus raising productivity. We present empirical evidence for a cross-section of 20 OECD countries (1984-1997) that relatively rigid (i.e. regulated and co-ordinated) labour markets promote long-run labour productivity growth. This conclusion is reinforced when we differentiate between (three) categories of labour markets in the OECD countries and test for differences in productivity performance.

One comment

  • This has always puzzled me. Americans always criticise the French youth because they have to stay in school longer to qualify for jobs. Among prime-working years, the French have the same employment rate as the US so they obviously adjust.

    Most American youth work through school and the dropout rate is the highest in the OECD, on par with Mexico.

    Sure, this may give a short-term boost to US GDP but the long-term potential productivity growth seems to be in France’s court.

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