Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 124: Generality, State Neutrality and Unemployment in the OECD

Nils Karlson (), Marcus Box () and Almas Heshmati ()
Additional contact information
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.

Keywords: generality; state neutrality; efficiency; unemployment; wage bargaining; cost shifting; OECD

JEL-codes: J01; J08; J64

27 pages, September 16, 2008

Full text files

nk_mb_ah_state_neutrality.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Martin Korpi ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2020-02-16 18:57:36.