The Political Economy of Coordination in Industrialized Democracies. A New Look at an Entangled Relationship

A growing literature on labor market coordination has produced a number of empirical multi-country models examining the determinants of labor and business coordination. What is less well understood is how closely those phenomena are intertwined. A well-established body of theory suggests that the coordination of one social partner is related to the behavior of the other, and that both are related to strategic choices of political parties. Understanding coordination is of prime importance to comparative political economy since it explains a range of outcomes, such as inequality, inflation, unemployment, growth, and political stability. In this paper we argue that we need to take into consideration the relationship between labor and business coordination and, at the same time, the relationship between coordination and Left government. Using a Bayesian model of simultaneous dynamic equations applied to data from eighteen OECD countries from 1970-2010, our results strongly challenge a number of influential findings in the comparative political economy literature that rely on assuming these factors are exogenous.