Corporatism and Unemployment in the 1980s and 1990s

Abstract

A number of studies have found an association between corporatist institutions and low unemployment in the 1970s and/or 1980s. Three gaps in our understanding of corporatism's labor market effects are addressed here: (1) Which of the two principal forms of corporatism—corporatist wage-setting or union participation in economic policymaking, or both—generates these effects? (2) What are the causal mechanisms? (3) Did these effects continue in the 1990s in the face of globalization, restrictive monetary policy, growing dissension within labor movements, and related developments? The impact of corporatism across 16 affluent OECD countries in the 1980s and 1990s is assessed using pooled time-series cross-section analysis. The results suggest that wage coordination was conducive to low unemployment in the 1980s because it fostered moderation in labor costs, spurred faster economic growth, and encouraged governments to more aggressively pursue policies to reduce unemployment. In the 1990s, this effect disappeared, largely because unemployment outcomes in low wage-coordination countries improved rather than because unemployment outcomes in high wage-coordination countries deteriorated. Union participation in economic policymaking was associated with low unemployment throughout the two decades, conditional on the presence of leftist government. Union participation appears to have had this effect mainly via government policy.