The liberalization of labor markets has once again propelled itself to the forefront of economic policy debates in Europe.  International organizations such as the IMF and the EU as well as numerous economic experts consider liberalization necessary in order to regain full employment and, more generally, to improve the prospects of countries in economic and financial distress.  Not surprisingly, labor market liberalization is a key element of the adjustment packages being enacted in countries that seem to have lost the confidence of international bond markets, such as Greece, Ireland, Italy, Portugal, and Spain.

This panel is interested in both the political determinants of liberalization reforms and their economic outcomes.  For this purpose it convenes a number of researchers carrying out complementary research on these themes.  Marco Simoni and Timothee R. Vlandas propose a paper on the “Determinants of Labor Market Liberalization in Europe,” in which they elaborate and test a model of government propensity to reform as a function of problem load and union strength.  One of the implications of the model is that if the problem load is high enough, governments will implement full liberalization even when they face strong unions.  This explains why a number of Nordic countries have liberalized their labor markets more than continental countries, and it is backed by regression analysis.

Carlo Michael Knotz  and Johannes Lindvall’s paper is entitled: “Political Institutions and Labor Market Reform: The Case of Unemployment Benefit Duration.”  It focuses on the political determinants of the reform of unemployment benefit duration and relies on a new database compiled by the authors on thirty advanced democracies, including most of the democracies in Central and Eastern Europe.  It shows that political institutions and the composition of governing coalitions have important effects on the likelihood and type of unemployment benefit reforms.  

Sabina Avdagic’s paper, “Is Deregulation Necessary? Re-Assessing the Effects of Employment Protection,” uses new data on reform of employment protection legislation (EPL) both in advanced industrial economies and in Central and Eastern Europe to assess econometrically the direct and indirect effects of EPL on levels and change in unemployment, both general and youth-specific.  Its main finding is that the impact of EPL reform is not statistically robust and that reducing EPL may well be futile. 

The paper by Klaus Armingeon and Lucio Baccaro, “In What Circumstances Does Labor Market Liberalization Work?” follows up on previous research suggesting the absence of an average effect of liberalization reforms (of both employment protection and unemployment insurance), and investigates through regression analysis and fs/QCA methods the configuration of circumstances in which reforms are associated with beneficial labor market outcomes.  It argues that positive effects are highly idiosyncratic and that institutional and other country-specific variables have little explanatory power.