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Generality, State Neutrality and Unemployment in the OECD
Nils Karlson
Marcus Box
Almas Heshmati
(Technology Management, Economics and Policy Program(TEMEP), Seoul National University)
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. These include 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 non-neutrality 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 definitely not unreserved, support for the generality principle as a method to promote economic efficiency. One implication may be that the principle should be amended by other requirements if the political process indeed shall be able to promote economic efficiency.
Nils Karlson & Marcus Box & Almas Heshmati, 2009. "Generality, State Neutrality and Unemployment in the OECD," TEMEP Discussion Papers 200931, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2009.
Handle: RePEc:snv:dp2009:200931
File URL: http://temep-repec.my-groups.de/DP-31.pdf
File Function: First version, 2009
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generality; state neutrality; efficiency; unemployment; wage bargaining; cost shifting; OECD;
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
N30 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - General, International, or Comparative
NEP-LAB-2010-01-10 (Labour Economics)
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