Political and Economic Explanations for Unemployment: A Cross-National and Long-Term Analysis

Abstract

This article shows that the widely accepted supply shock and real wage gap explanation of increases in unemployment rates since 1973 has only limited empirical support. The causal factors behind unemployment are best understood by focusing on conflicts of interest in Western democracies, on the distribution of power resources between major interest groups and on strategies of conflict. Given economic constraints, from this perspective unemployment appears as the labour market expression of distributive conflict, alternatives to which are inflation and industrial disputes. Strategic action by government elites and long-term patterns in settling conflicts are major factors behind the two great transformations of Western unemployment levels – the introduction of full employment in the immediate post-war period and the return to high unemployment since 1973 – as well as in variations in unemployment among eighteen Western democracies.