International Comparisons of Labor Productivity Growth: The Role of Worker Protection

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2011
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Haverford College. Department of Economics
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Award
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eng
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Haverford users only
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Abstract
This study investigates the impact of policies and institutions promoting worker protection on labor productivity growth in an attempt to explain the recent divergence in labor productivity growth between the United States and the European Union. A cross-country/time series fixed effects analysis is conducted for the US and 13 member countries of the EU over the period 1980-2003. The average direct effects of wage coordination, union coverage, and employment protection legislation (EPL) on labor productivity growth are found to be negative and significant, which suggests that higher levels of worker protection are detrimental to labor productivity growth. Wage centralization and union density also exert a negative impact on labor productivity growth, but the impacts of these two measures of worker protection are not found to be significant. The examination of interactions between all policies and institutions produces results which are consistent with the theory of reform complementarity, meaning that the effect of each interaction term is found to be positive even though the effects of the individual policies and institutions included in the term are all negative. Specifically, given high enough levels of worker protection, the interactions between wage centralization and union coverage and between wage coordination and EPL were both significant and showed a positive impact on labor productivity growth.
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