(), Marcus Box
() and Almas Heshmati
Nils Karlson: Ratio, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Marcus Box: Ratio, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Almas Heshmati: Ratio, Postal: The Ratio Institute, P.O. Box 3203, SE-103 64 Stockholm, Sweden
Abstract: According to Buchanan and Congleton (1998), the generality principle in politics blocks special interests. Consequently, the generality principle should thereby promote economic efficiency. This study tests this hypothesis on wage formation and labor markets, by investigating whether generality defined as state neutrality could explain employment performance among OECD countries during 1970-2003. We identify three types of non-neutrality as concerns unemployment: the level or degree of government interference in the wage bargaining process over and above legislation which facilitate mutually beneficial wage agreements, the constrained bargaining range (meaning the extent to which the state favors or blocks certain outcomes of the bargaining process), and the cost shifting (which relates to state interference shifting the direct or indirect burden of costs facing the parties on the labor market). Our overall hypothesis is that nonneutrality or non-generality increases unemployment rates. The empirical results from the general conditional model suggest that government intervention and a constrained bargaining range clearly increase unemployment, while a few of the cost shifting variables have unexpected effects. The findings thus give some, but not unqualified, support for the generality principle as a method to promote economic efficiency.
27 pages, September 16, 2008
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