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134 Int'l Lab. Rev. 605 (1995)
Employment and Productivity in Industrialized Economies

handle is hein.journals/intlr134 and id is 619 raw text is: International Labour Review, 1995, Vol. 134, No. 4-5

Employment and productivity
in industrialized economies
Eileen APPELBAUM* and Ronald SCHETTKAT**
mployment trends in the industrialized economies became remarkably
L    divergent in the 1970s and 1980s. Inter-country variations in the growth
rates of gross domestic product (GDP) were much narrower than variations
in employment growth (see table 1 for an overview of key variables).
Cross-national research shows that employment growth in European
countries has been much slower than in the United States. This has been
explained by the obvious institutional differences between North America
and Europe, with the suggestion that the overregulated European
economies were unable to respond to shocks in the world economy.
Eurosclerosis is the term that best describes this view of the impact of
institutions on economic and labour market performance. As clear as the
diagnosis from this cross-national research is the therapy: deregulate labour
markets in the European economies and the forces unleashed by
unregulated markets will bring full employment back to Europe (for
proposals along these lines, see Donges, 1992; OECD, 1990, Chapter 5;
OECD, 1994, Part III).
Meanwhile, the political experiments of the Thatcher Government in
the United Kingdom, the increasing social problems in the United States and
experience in eastern Europe with markets not embedded in an institutional
environment have raised doubts about the promised effects of deregulation.
These doubts have been reinforced by detailed studies of the impact of
institutions on economic performance and employment, which have
questioned the results of oversimplified analyses (for exafliple, Buttler et al.,
1995; Abraham and Houseman, 1993; Schettkat, 1992; and Sengenberger,
1987). Calmfors and Driffill (1988) and Freeman (1988b), for instance, have
shown that both centralized and decentralized wage-bargaining systems can
produce favourable employment outcomes. In the case of a centralized wage
bargaining system, unions are expected to internalize the negative effects of
excessive wage increases, whereas in a decentralized system the market is
* Economic Policy Institute, Washington, DC. ** Wissenschaftszentrum Berlin.

Copyright © International Labour Organization 1995

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