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Corporatism and Unemployment in the 1980S and 1990S Author(S): Lane Kenworthy Source: American Sociological Review, Vol Corporatism and Unemployment in the 1980s and 1990s Author(s): Lane Kenworthy Source: American Sociological Review, Vol. 67, No. 3 (Jun., 2002), pp. 367-388 Published by: American Sociological Association Stable URL: http://www.jstor.org/stable/3088962 Accessed: 16-11-2015 12:19 UTC Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at http://www.jstor.org/page/ info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Sage Publications, Inc. and American Sociological Association are collaborating with JSTOR to digitize, preserve and extend access to American Sociological Review. http://www.jstor.org This content downloaded from 192.124.250.5 on Mon, 16 Nov 2015 12:19:08 UTC All use subject to JSTOR Terms and Conditions CORPORATISM AND UNEMPLOYMENT IN THE 1980S AND 1990S LANE KENWORTHY Emory University A number of studies have found an association between corporatist institutions and low unemployment in the 1970s and/or 1980s. Three gaps in our understanding of corporatism's labor market effects are addressed here: (1) Which of the two princi- pal forms of corporatism-corporatist wage-setting or union participation in eco- nomic policymaking, or both-generates these effects? (2) What are the causal mechanisms? (3) Did these effects continue in the 1990s in the face of globalization, restrictive monetary policy, growing dissension within labor movements, and related developments? The impact of corporatism across 16 affluent OECD countries in the 1980s and 1990s is assessed using pooled time-series cross-section analysis. The results suggest that wage coordination was conducive to low unemployment in the 1980s because it fostered moderation in labor costs, spurred faster economic growth, and encouraged governments to more aggressively pursue policies to reduce unemployment. In the 1990s, this effect disappeared, largely because unemployment outcomes in low wage-coordination countries improved rather than because unem- ployment outcomes in high wage-coordination countries deteriorated. Union partici- pation in economic policymaking was associated with low unemployment throughout the two decades, conditional on the presence of leftist government. Union participa- tion appears to have had this effect mainly via government policy. C ORPORATISM refers to various force are bargained by national union and types of institutional arrangements employer confederations. A second impor- whereby important political-economic deci- tant form is participationby such confedera- sions are reached via negotiation between, or tions in the formation of government deci- in consultation with, peak-level representa- sions about nonwage issues such as fiscal tives of employees and/or employers, some- policy, monetary policy, active labor market times involving other interest groups and the policy, and so on. Corporatist arrangements state. One of the best-known forms of cor- have been among the key political-economic poratism is centralized wage-setting, in institutions in a number of affluent capitalist which wages for a large portion of the work nations since the 1960s. They have thus been of substantial interest to macro-comparative Direct all correspondence to Lane Kenworthy, sociologists, political scientists, and econo- Department of Sociology, Emory University, At- mists. lanta, GA 30322 ([email protected]). For A number of studies have found an asso- helpful comments I thank Alex Hicks, Bernhard ciation between the prominence of corporat- Kittel, and the ASR reviewers, as well as Art ist institutions and low unemployment in the Alderson, Anke Hassel, Fritz Scharpf, Michael 1970s and/or 1980s (Bruno and Sachs 1985; Smith, Wolfgang Streeck, and Michael Waller- Calmfors and Driffill 1988; Cameron 1984; stein. I am also grateful to Stephen Nickell for Compston 1997; Garrett 1998; Hall and allowing me access to data from the Centre for Hicks Kenworthy 1998; Economic Performance. Portions of this paper Franzese 1998; and were written while I was a visiting scholar at the Iversen 1999; Janoski, McGill, and Tinsley Max Planck Institute for the Study of Societies 1997; Layard, Nickell, and Jackman 1991; in Cologne, Germany. Scharpf [1987] 1991; Soskice 1990). Unem- AMERICAN SOCIOLOGICAL REVIEw, 2002, VOL.67 (JUNE:367-388) 367 This content downloaded from 192.124.250.5 on Mon, 16 Nov 2015 12:19:08 UTC All use subject to JSTOR Terms and Conditions 368 AMERICAN SOCIOLOGICAL REVIEW ployment is one of the most important eco- existing research has mistakenly emphasized nomic outcomes in affluent countries. It is a the wrong form of corporatism. major contributor to individual unhappiness (Clark and Oswald 1994) and to societal ills WHAT ARE THE CAUSAL MECHANISMS? such as poverty, neighborhood decay, and crime (Chiricos 1987; Wilson 1996); it also Among researchers interested in wage deter- impedes economic growth (Okun 1973) and mination, the predominant notion has been is a potential threat to the welfare state that centralized or coordinated wage-setting (Esping-Andersen 1999). Large-scale unem- yields low unemployment by engendering ployment has arguably been the prime eco- real wage restraint. (I use the term "wages" nomic, social, and political issue in much of throughout as shorthandfor wages plus ben- Western Europe over the past two decades. efits.) The general logic is relatively simple, I attempt to answer three questions that although specific applications of it can be reflect notable gaps in previous research complex (Franzese 1999; Organization for linking corporatism with low unemploy- Economic Cooperation and Development ment: (1) Are corporatism's effects on unem- [OECD] 1997). If employees bargain ag- ployment generated by both corporatist gressively for high wage increases and em- wage-setting and union participation in eco- ployers acquiesce, the latter can do five main nomic policymaking, or by only one of these things in response: raise productivity, raise forms of corporatism? (2) What are the prices, reduce profits paid out to investors, causal mechanisms through which such ef- reduce investment, and/or reduce the num- fects occur? (3) Did these effects continue ber of employees. Where wages are bar- in the 1990s in the face of globalization, re- gained at a large number of separate firms strictive monetary policy, growing dissen- or plants, each individual union may reason- sion within labor movements, and related ably hope that its employer's response to a developments? pay increase will consist predominantly of some combination of the first four options. None of these responses will necessarily THREE QUESTIONS have an adverse short-term effect on em- ployment or inflation-adjustedwages, which WHICH FORM OF CORPORATISM? are the principal concerns of union negotia- The focus of most research on corporatism's tors. Even if the firm chooses to reduce em- macroeconomic effects has been on wage- ployment, those laid off should be able to setting arrangements. Yet some scholars find work elsewhere as long as the pattern view corporatism as participation by orga- of wage increases and layoffs is not general- nized interest groups in various types of ized throughout the economy. Thus, where public policymaking. This conception, origi- bargaining is decentralized and uncoordi- nally highlighted by Lehmbruch (1984), has nated, there is an incentive for unions to pur- received relatively little attention in the em- sue a strategy of wage militancy. pirical literatureduring the past two decades. By contrast, if the wage negotiations cover Indeed, only three studies have examined the a relatively large share of the work force, effect of union participation in policymak- union bargainerscan be reasonably sure that ing on unemployment (Boreham and a large wage increase will have an adverse Compston 1992; Compston 1997; Traxler, impact on their members. For instance, when Blaschke, and Kittel 2001:227-31). Each an individual firm raises prices, this is likely found a beneficial effect. to have little or no effect on the living stan- No prior study has examined the macro- dard of that firm's own employees (unless economic impact of these two principal the company's goods or services happen to forms of corporatism in conjunction. Analy- account for a large share of what those em- ses of corporatist wage-setting have not con- ployees consume). But when firms repre- trolled for union participation in policy- senting a sizable share of the economy raise making, and vice-versa. These two forms are prices, the resulting inflation offsets or nul- likely to be correlated with one another,rais- lifies the wage gains of most workers. Simi- ing the possibility that at least some of the larly, a reduction in employment at a single This content downloaded from 192.124.250.5 on Mon, 16 Nov 2015 12:19:08 UTC All use subject to JSTOR Terms and Conditions CORPORATISM AND UNEMPLOYMENT 369 firm does not necessarily reduce the job ful sector, as in Germany, or by a group of prospects for workers who are laid off; but influential firms, as in Japan. Pattern-setting if wage increases and ensuing layoffs are exists where bargaining is formally decen- economy-wide, employment opportunities tralized, but in practice one or a few wage will diminish. Centralized or coordinated settlements (e.g., the metalworkers' settle- wage-setting thus generates an incentive for ment in Germany) are seen by all or most wage moderation. other bargaining parties as determining the Wage moderation, in turn, is presumed to outcome that they will follow. contribute to lower unemployment. The as- Centralization has received the bulk of at- sumption is that slower growth of real labor tention in the corporatist literature. But to costs (often referred to as "real unit labor understandthe effects of wage-setting insti- costs") leads to lower unemployment.
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