How do labor market institutions shape labor market outcomes, and what determines the choice of these institutions? In December 2004, leading European and North American experts in this area gathered at IZA to discuss the most recent theoretical and empirical advances in these research questions.
Several papers investigated the role of employment protection legislation (EPL) in the labor market. For the German case, evidence was provided that variable enforcement of dismissal protection does not seem to have a sizeable effect on worker flows. However, employment protection should matter more for temporary than for highly persistent shocks. This hypothesis was supported by constructing a measure of job flows caused by the seasonal cycle for 14 OECD countries. In another contribution, answers of European households were analyzed, finding that perceived job security is stronger influenced by unemployment benefits than employment protection. Furthermore, it was theoretically and empirically shown that the male breadwinner conception is an important determinant of EPL. This conception’s strength was shown to be related to religious values: their differences can explain variation in the strictness of EPL.
Other studies dealt with the effects of unemployment insurance and job search assistance on labor market transitions. For France, empirical evidence was provided that job search assistance has reduced the duration and recurrence of unemployment. Comparing the experiences of European countries, another paper found that higher unemployment benefits reduce exit rates from unemployment. However, such benefits might lead to more subsequent employment stability if the recipients have been unemployed for a short term.
Furthermore, the workshop presented research results on credit market structures and labor market institutions. Labor market regulation and redistribution seem to be more pronounced in countries with more credit market imperfections. Another session presented research results on interactions of unions and labor market outcomes. Evidence was presented that union density increases unemployment and wages, and in turn unemployment raises union density. A theoretical contribution analyzed the endogeneity of bargaining regimes, arguing that more regulated product markets, in which more rents are available, make union bargaining more attractive with adverse consequences for employment.