Working Paper: NBER ID: w9756
Authors: Juan Botero; Simeon Djankov; Rafael La Porta; Florencio Lopez-de-Silanes; Andrei Shleifer
Abstract: We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.
Keywords: Labor Regulation; Employment Laws; Collective Bargaining Laws; Social Security Laws
JEL Codes: J1; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic wealth (E21) | extent of labor regulation (J88) |
| political power of the left (P26) | labor regulations (J88) |
| political power of the left (P26) | social security systems (H55) |
| legal origin (K20) | extent of labor regulation (J88) |
| extent of labor regulation (J88) | unofficial economy (E26) |
| extent of labor regulation (J88) | labor force participation (J22) |
| extent of labor regulation (J88) | unemployment (J64) |
| extent of labor regulation (J88) | youth unemployment (J64) |