Working Paper No. 43 - Unemployment and Labour Market Institutions: The Failure of the Empirical Case for Deregulation

Recent debate has argued whether labour market institutions and regulation has been the cause of a rise in unemployment due to rigidities imposed on the free working of labour markets. Labour market institutions generally refer to employment protection policies, unemployment insurance benefits, unions, payroll taxes, the coordination of collective bargaining, and active labour market policies. This paper has investigated the strength of the evidence regarding the effects of labour market institutions and the regulations on unemployment in OECD countries by analyzing surveys and studies for empirical results. However, the results varied which limits what should be done concerning labour market regulation policies. The Netherlands and Ireland proved to have strong labour market institutions and low unemployment rates partly due to the coordination of collective bargaining. Also, the United Kingdom and the United States showed to have weak labour market institutions and low unemployment rates. Therefore, there is no single model, according to this evidence, which guarantees successful employment performance.