Sindicatos Fortes e Auxílio Desemprego Aumentam a Taxa de Desemprego?
Economistas ortodoxos responderiam “sim” à pergunta acima. Para o mainstream econômico, sindicato forte, auxílio desemprego e salário mínimo alto aumentam a taxa média de desemprego de um país. A solução, segundo esta mesma ortodoxia econômica, seria flexibilizar o mercado de trabalho e diminuir a intervenção estatal. Como exemplo histórico, tais economistas citam a diferença entre EUA e Europa, já que enquanto os norte-americanos puderam conciliar menores taxas de desemprego com flexibilização do mercado de trabalho, os europeus mantiveram suas estruturas sindicais fortes e com polpudos benefícios para os sem trabalho e, com isso, amargam maiores taxas de desemprego do que as observadas nos EUA. Entretando, um largo estudo publicado em 2007 por David Howell e Dean Baker evidencia exatamente o contrário. Em primeiro lugar, Howell e Baker mostram que não é verdade que a Europa tem taxas de desemprego mais altas do que as dos EUA. Em segundo lugar, mostram que o desemprego não pode ser explicado por sindicatos fortes e por auxílios aos sem trabalho. Em terceiro lugar, mostram que sindicatos fortes e auxílio desemprego reduzem a desigualdade de salários. Em quarto, estudos econométricos mostram que, ao contrário do que se supõe, a causalidade vai do aumento do desemprego para o aumento dos benefícios aos desemrpegados. Este último ponto é que se chama de causalidade reversa ou endogeneidade da política. Em quinto, países bem sucedidos em termos de igualdade social e baixo desemprego não se caracterizam por políticas austeras contra os desempregados, senão justamente o contrário. Em outras palavras, a idéia de que melhores e maiores direitos trabalhistas aumentem o desemprego pertence mais à ideologia da direita do que de fato às evidências empíricas. Confira aqui os resultados e as conclusões a que este importante estudo chegou.
Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence
David R. Howell, Dean Baker, Andrew Glyn, and John Schmitt
As recently as 1979, among the 20 most developed (OECD-member) countries only Ireland and Portugal reported unemployment rates above 8 percent (each at about 8.5 percent). Just four years later, 11 of these 20 countries posted higher rates and six reached double-digit levels, ranging from Belgium (10.7 percent) to Ireland (14.9 percent). This collapse in employment performance persisted throughout the 1980s and 1990s. Between 1995 and 1997, as the U.S. was showing rates between 5.6 to 4.9 percent, OECD-Europe ranged from 10.1 to 9.7 percent. By 2005, the OECD-Europe rate had dropped to 8.6 percent, but the two largest economies of continental Europe, France and Germany, had rates of 9.5 percent.1 Much like the response of economists to the Great Depression, the dominant explanation for persistent high unemployment has focused on supply-side rigidities generated by protective labor market institutions, and similarly, the proposed solution has been greater (downward) wage flexibility and stronger work incentives. As Fitoussi (2006) has recently put it, “The reference model, in the plea for structural reforms, is centered on an economy with perfect competition and rational expectations. In such a model full employment is always assured absent rigidities…”. Spurred in particular by the influence of the Layard, Nickell and Jackman (1991) and the OECD’s Jobs Study (1994), by the late 1990s this orthodox rigidity account thoroughly ruled the field. The title of a prominent paper in the Journal of Economic Perspectives aptly summed up the conventional wisdom: “Labor Market Rigidities: At the Root of Unemployment in Europe” (Siebert, 1997). The policy implications of the rigidities view are straightforward and profound. As the IMF (2003, p. 129) put it, “leading international institutions— the IMF, OECD and the European Commission—have long argued that the causes of unemployment can be found in labor market institutions. Accordingly, countries with high unemployment have been repeatedly urged to undertake comprehensive structural reforms to reduce ‘labor market rigidities.’” Their own empirical tests led IMF researchers to conclude that European adoption of “well-designed reforms (the U.S. model) could produce output gains of about 5 percent and a fall in the unemployment rate of about 3 percentage points (IMF, p. 129).”
At the same time, the orthodox labor market rigidity view has become so widely accepted that a leading scholar could recently claim in a recent issue of the Journal of Economic Perspectives that “evidence supports the traditional view that rigidities that reduce competition in labor markets are typically responsible for high unemployment” without citing any peer-reviewed research (St. Paul, 2004, p. 53). The dominance of the orthodox labor market rigidities explanation of unemployment and the recent focus on macroeconometric testing reflects a striking evolution in mainstream economics. As recently as 1994, Charles Bean’s influential survey of European unemployment allocated little space to evidence on the effects of labor market institutions on employment performance, finding little compelling empirical support in the literature for any of them. Bean concluded with three recommendations for future research, the first of which was to discourage further macroeconometric testing: “There is simply not enough information in the data to give clear signals on the relative merits of the competing hypotheses (p. 615).” Far from heeding this advice, the cross-country macroeconometric literature has grown dramatically (for recent surveys, see OECD, 2006; Blanchard, 2006).
Certainly an important part of the explanation for this explosion in cross-country studies of unemployment was the growing gap in employment performance between the U.S. and large European countries after the early 1990s, which lent at least anecdotal support to the orthodox rigidities explanation. It is worth noting that the dominance of the labor market rigidities account for developed country employment performance closely paralleled that of the “Washington Consensus” in trade and development studies. Both reflected what has become known as “free market fundamentalism.” The growing interest in verifying the rigidities account through macroeconometric testing required much “more information in the data” as Bean had put it, and due largely to the efforts of the OECD, one of the distinctive features of this literature over the last decade has been the steady improvement in country-level institutional measures.
This paper critically assesses the empirical evidence produced by this recent literature. Three labor market institutions have been held to play leading roles in the promotion of employment-unfriendly rigidities: unemployment benefit entitlements, employment protection laws, and trade unions. These are the key institutional mechanisms that most developed countries have relied upon to shelter less-skilled workers from the most harmful effects of competitive labor markets. We will refer to them as “protective labor market institutions” and distinguish them from other key institutions that also have important labor market effects: active labor market policies (ALMP), which are concerned with matching and preparing workers for jobs; tax policy, which influences behavior and affects labor costs, but is principally designed to raise revenue, not protect workers; and housing policies, which affect ownership rates and could affect worker mobility, but are not designed to protect workers in the labor market. After outlining the basic facts on the cross-country pattern of unemployment and labor market institutions, section 2 considers some critical (and generally underappreciated) issues of measurement. Section 3 then evaluates the simple correlation evidence between standard measures of labor market institutions and unemployment. Section 4 addresses the macroeconometric evidence. Since the most robust evidence in favor of the orthodox rigidity view concerns the role played by unemployment benefit generosity, in Section 5 we take a closer look at the interpretation of the effects of benefit generosity in recent macroeconometric research. This section also reviews the microeconometric evidence on benefit generosity and worker behavior, which has often been cited as supporting evidence. Section 6 then turns to recent efforts to develop aggregate indicators of labor market reform designed to show the payoff of comprehensive labor market reform for employment performance. We conclude in Section 7 with a summary and brief discussion of the interplay between theory, evidence, and policy recommendations.
1. UNEMPLOYMENT AND INSTITUTIONS: THE BASIC FACTS
Figure 1 shows the levels and dispersion of unemployment rates for 19 OECD-member countries for each 5-year period between 1960 and 2004, and includes the most recent figures for 2005 at the far right. As a reference, the line that runs from left to right marks the U.S. rate. The table at the bottom presents the U.S. rate, the median, and a measure of the dispersion of rates (the standard deviation). This figure highlights some key facts about the changing nature of the unemployment problem in the developed world. First, nearly all countries experienced escalating unemployment through at least the late 1980s. The median unemployment rate (see the table below the Figure) rose from 1.9 percent in the late 1960s to 8.8 percent in 1990-94 (unemployment rates prior to the 1980s should be viewed with considerable caution – see section 2.1). Second, the dispersion of rates has moved upward with the median. The standard deviation for these 19 countries increased sharply from the 1.2–2.2 range in the 1960s–70s to 3.3–4.5 in the 1980s–90s. Third, unemployment rates have declined and converged substantially since the late 1990s: the median fell from 7.9 percent in 1995–99 to 5.3 percent in 2000–04 and 5.2 percent for 2005; the standard deviation fell from 3.9 to just below 2, which is about where it was on average in the 1970s. The figure shows that the distribution of unemployment rates in 2005 falls in a range of about six percentage points (from four to ten percent), about the same as the range in 1960–74 (from about zero to 6 percent). And fourth, the unemployment performance of the U.S. varies dramatically over this period, from among the countries with the very highest rates through the first two decades (1960–79) to among those with the lowest rates in the second half of the 1990s, and back again to close to the median since 2000 (see 2000–04 and 2005). It is also worth noting that New Zealand has regained its position as the country with the lowest unemployment rate; Ireland has dropped to the second lowest rate from the second highest in 1985–94; and Spain as experienced a remarkable decline, to a level that is now just below that of Germany and France.
In the popular press and in a surprising number of professional papers, “Europe” is often portrayed as a single entity characterized by high unemployment and strong social protections, in contrast to the much better performing and relatively unregulated labor markets of the U.S. and other Anglo-Saxon economies. This conventional view greatly misrepresents the facts, at least based on standard OECD measures of labor market institutions and policies.
Table 1 reports unemployment rates for 2003 by demographic group for countries in three groupings: six English-speaking countries with generally low unemployment (Canada remains at higher levels); six high unemployment continental European countries; and six European low unemployment countries. This table shows that the six liberal, English speaking countries had average unemployment rates nearly identical to those of the six low-unemployment European countries for all four demographic groups – male and female young and prime age workers. The five high-unemployment Continental countries show substantially higher unemployment for each age-gender group. With the exception of Germany, each has experienced extremely high youth unemployment. Female youth show rates of 17.5 percent in Belgium, 22.8 percent in France, 27.2 percent in Spain, and 30.9 percent in Italy; male youth rates range from 18–23 percent. Clearly, young people in these four countries account for an important part of the European unemployment problem. It should be recognized, however, that using an alternative measure of unemployment— as a share of the youth population rather than as a share of the youth labor force—the picture looks quite a bit different. With this alternative measure, for example, France and the U.S. have similar youth unemployment rates (Howell, 2005, chapter 1).
The similarity between unemployment rates for the liberal English-speaking countries and low-unemployment Europe is notable because the latter remain characterized by strong welfare states and highly protective labor market institutions. Table 2 shows that while both of the European groups show much greater levels of social protection and regulation (rows 4–9) and much higher tax revenue shares (row 10), only the conservative/corporatist economies of “high- unemployment Europe” show worse employment performance than the liberal economies. Indeed, on both unemployment and employment rates, the northern European welfare states show, on average, superior labor market performance to the liberal ones (rows 1–3), and they do so with much lower wage inequality (row 11). As Nickell (1997; 2003) has pointed out, many Europeans live in regions with lower unemployment rates than the U.S. and most of the unemployed of Europe live in four large countries (France, Spain, Italy and Germany).
This section has outlined some reasons for caution in concluding from the available regression evidence that benefit generosity is at the root of the pattern of unemployment and its change over time in OECD countries.
Concerning the interpretation of the macroeconometric evidence, it should be recognized that in many countries, especially the high unemployment countries of Southern Europe (Spain, France, Italy), only a modest share of the officially counted unemployed actually receive benefits. This means the presumed effects of benefit generosity on the supply (work incentives) and demand (wage pressure) sides apply to as little as 20–50 percent of the unemployed. Further caution is suggested by the timing and causality in the relationship between benefit generosity and unemployment rates. The absence of any relationship between benefit recipiency rates and unemployment rates suggests that benefit generosity, strictness of eligibility rules, and the tough enforcement of those rules do not distinguish the “success stories.” Time trends between gross replacement rates and unemployment show little correspondence for either the “success” or the “failure” countries, and Granger tests indicate that in most cases it is unemployment that predicts benefits, not the reverse (the case in all four success stories and two of the four failure countries).
The microeconometric evidence offers some support for the predicted effects of changes in benefit entitlement generosity, eligibility rules, and enforcement strictness on the duration of unemployment benefit and the exit rate out of unemployment. But the results are surprisingly mixed and often with quite modest effects. In any case, the micro evidence does not imply that reductions in generosity or tightening eligibility rules would necessarily have any effect on the overall unemployment rate since changes in benefit generosity may have offsetting effects via inflows into unemployment and employment (due to “composition” and “entitlement” effects).
The orthodox prediction rests on large effects of the benefit system on the reservation wage and worker search behavior, and consequently on aggregate unemployment rates. There is very little direct evidence that establishes these links. What has been demonstrated is that most studies have found a significant statistical relationship between measures of benefit generosity and cross country patterns of unemployment. But we know of no research that has established that the direction of causation runs primarily in the orthodox direction or that micro evidence linking benefit generosity and unemployment duration translates to aggregate unemployment rates. On the basis of the available evidence, it seems reasonable to remain skeptical that any conceivable change in typical European benefits systems could alter wage pressure and search behavior sufficiently to have meaningful effects on the aggregate unemployment rate.
In his survey on the labor market effects of the unemployment benefit system, Holmlund (1998, p. 114) writes that “a hallmark of modern labor economics is the close interplay between the development of theory, data sources and econometric testing.” There can be little doubt that this interplay has greatly advanced our knowledge in many areas. At the same time, as Manning (1998) suggests in his comment on the Holmlund survey, theory seems the dominant partner in this interplay, playing a “disturbingly large part in informing the discussion” (p. 145).
Our survey is motivated by a concern that empirical research on the determinants of high unemployment in the developed world has been, to a disturbing degree, driven by efforts to verify, or confirm, orthodox theory, rather than by efforts to critically test it. Blaug (1992) has identified this as a wider affliction in the discipline. As he puts it (p. 241), “instead of attempting to refute testable predictions, modern economists all too frequently are satisfied to demonstrate that the real world conforms to their predictions, thus replacing falsification, which is difficult, with verification, which is easy.”
This paper can be viewed, then, as a case study in which we take a deliberately skeptical stance on the ability of the available statistical evidence to support the conventional orthodox view that protective labor market institutions can largely account for differences in how unemployment has evolved across countries since the 1970s. We began by noting that the cross-country pattern of unemployment has changed dramatically over the last three decades. For the major OECD countries, the overall picture is one of sharp increases in the level and dispersion of rates through the mid-1990s, followed by a striking decline in level and dispersion.
At the same time, we have seen large swings in unemployment in countries with very different institutional settings: the UK, Ireland, Canada, and New Zealand among the English-speaking market-oriented countries; Spain and Germany among the continental European countries; and Denmark, the Netherlands, Sweden, and Finland among the Northern European and Nordic countries. These are among the most extreme examples of the changes in employment performance that the presence of protective labor market institutions (PLMIs) is presumed to be able to explain.
Given the difficulty of developing consistent series unemployment rate series over time and across countries, and the even more daunting task of generating consistent time series of policies and institutions, it is surprising that so little attention has been paid to the historical consistency and quality of the data. There have been considerable efforts to improve the institutional variables, notably by the OECD, but gains from these improvements (and from the use of more sophisticated econometric methods) may have been compromised in studies that have extended the time series analysis back to the early 1960s with annual data, a research strategy that requires much better data than are currently available. For these reasons, the most recent entry into this field by the OECD (OECD, 2006a; Bassanini and Duval, 2006) examines just the period since 1982. It is notable that as the data and econometric methods have improved, the number of PLMI measures found to be significant in the expected direction has plummeted: compare, for example, Scarpetta (1996) and Nickell (1997) with Baccaro and Rei (2005) and Bassanini and Duval (2006).
The widely accepted centrality of PLMIs for labor market performance might lead the unwary to believe that there would be some strong simple cross-country relationships between the two. Indeed, bivariate plots have frequently been employed in this literature to establish the connection between, for example, benefit duration and unemployment rates. But a closer look shows that, especially with the shift from the more subjective early institutional measures to the more carefully constructed OECD data that replaced them, such significant simple correlations do not show up in the data. A large and increasingly sophisticated literature has employed measures of PLMIs in panel data models designed to explain the cross-country pattern of unemployment over time. While significant impacts for employment protection, benefit generosity, and union strength have been reported, the clear conclusion from our review of these studies is that the effects for the PLMIs are distinctly unrobust, with widely divergent coefficients and levels of significance. The one possible exception to this conclusion is the role played by unemployment benefit generosity, but rather remarkably, little attention has been paid in this case to the direction of causation. Common sense political economy considerations and Granger test results both suggest that much of any statistical association runs from changes in unemployment to changes in benefit generosity.
The microeconometric evidence has frequently been cited as confirmation for the dominant macroeconometric findings. It is certainly not controversial that greater benefit generosity will tend to have effects on labor market behavior. The question is whether politically realistic changes in benefit generosity are likely to have sufficiently large effects on worker labor supply decisions and wage pressure to produce measurable (much less major) impacts on the aggregate unemployment rate. Our review of this evidence indicates surprisingly small effects on the duration of unemployment, even when “drastic” changes in benefit generosity are examined in recent “natural experiment” studies. In any case, reductions in generosity or tightening eligibility rules have no necessary effect on the overall unemployment rate since changes in benefit generosity may have offsetting effects via inflows into unemployment and employment (“composition” and “entitlement” effects).
It is increasingly recognized that labor market institutions and policies are interdependent and successful employment performance is likely to reflect coordinated reforms. Our final section looked at recent attempts to measure the impact of overall labor market reform on unemployment rates over the past decade or so. Again, we find that the positive conclusion in these studies reflects more the initial orthodox presumption of a strong positive relationship than the actual statistical evidence that is presented, particularly concerning the impacts of the key PLMIs. Such lack of robustness may very well be an inevitable result of attempts to estimate economic relationships with poorly measured institutions and policies, imperfectly measured macroeconomic shocks and shifting economic structures, and small numbers of (country) observations. But a striking feature of this literature is the contrast between the fragility of the findings (both within and across studies) and the confidence with which it is often concluded from them that labor market rigidities are indeed at the root of poor employment performance.
Our review suggests that the theory-data-testing interplay mentioned above has been too unbalanced in this literature — orthodox theoretical priors overly determine the variable construction, empirical testing and interpretation of the results. A healthier dose of skepticism is required to give the data a chance to challenge orthodox views. This is particularly important for this area of study – employment performance – since policy recommendations grounded in empirical research have had (and should have) a powerful influence on policy making. National institutions and policies that affect the functioning of labor markets need to be regularly re-examined and adjusted to reflect changes in the economy, the labor force, and social norms. At the same time, institutional reforms that demonstrably reduce the well being of many workers should be undertaken only with compelling evidence about the magnitudes of offsetting benefits.