Labour market reforms and economic growth – the European experience in the 1990s

Abstract

Purpose – The purpose of this paper is to reassess the relative impact of labour market regulation on economic performance. Inflexible labour markets combined with high welfare costs are often thought to be the main cause of low growth in Europe.Design/methodology/approach – This paper compares the impact of labour market regulation to that of macroeconomic policies (such as fiscal policy, monetary policy, macroeconomic cost management) and to that of investment into future growth (such as research, education and the diffusion of technology). We develop for this purpose a highly stylised model explaining economic growth; we suggest a synthetic measure of performance and use data for the US and Europe for the empirical test.Findings – The main result is that regulation impacts on growth, the impact of regulatory change is, however, less easy to demonstrate. The impact of macro economic policy can be demonstrated first by the more growth oriented monetary and fiscal policy in the US and the success of some ...