The Regulation of Labor
The Regulation of Labor Juan Botero, Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer1 May 2003 Abstract We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems. 1The authors are from Yale University, World Bank, Harvard University, Yale University, and Harvard University, respectively. This research was supported by the World Bank, the Gildor Foundation, the National Science Foundation, and the International Institute for Corporate Governance at Yale University. We appreciate helpful comments from Daron Acemoglu, Gary Becker, Olivier Blanchard, Richard Freeman, Peter Gourevitch, Simon Johnson, Lawrence Katz, Casey Mulligan, and Christopher Woodruff. The data for the tables can be found at http://iicg.som.yale.edu//. I. Introduction Every country in the world has established a complex system of laws and institutions intended to protect the interests of workers and to guarantee a minimum standard of living to its population.
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