The Importance of Legislated Employment Mark Harcourt, Protection for Worker Commitment in Geoffrey Wood Coordinated Market Economies
This article extends contemporary debates about corporate governance, institutions, and firm-level behavioral effects, with a more systematic analysis of how one institution, legislated employment protection (employment security), deepens the reliance of firms in coordinated market economies (CMEs) on cooperative employer employee relations for their competitive success (cf. Whitley 1999, 38; Wood 2001, 252). This represents a meso or mid-level approach, as opposed to existing studies, which adopt a micro-level focus on industry case studies or a macro-level focus on cross-national differences in entire clusters of employment practices. We begin with a brief overview of two schools of institutional thought: varieties of capitalism (VOC) and regulation theory (RT). We then define and describe the key elements of legislated employment protection (employment security) as an institution, in addition to how these elements differ across CME countries, and between CMEs and the United States, the liberal market economy (LME) with the least employment protection. We then discuss the importance of worker commitment to CME economic success, and the crucial part played by legislated employment protection in engendering that commitment. We acknowledge that legislated employment protection may have negative lethargy effects, but argue that these are potentially less damaging in CMEs than LMEs for the same degree of protection. Next, we suggest practical ways that CMEs might modify legislated employment protection to both allay the negative lethargy effects and enhance the positive commitment effects. Finally, we conclude by stressing that despite its economic importance, legislated employment protection in CMEs remains politically fragile, in being vulnerable to attack by employers pursuing narrow, private interests.