The political economy of unemployment, labour market institutions and macroeconomic policies in open economies: the cases of Germany and the Netherlands in the 1980s and 1990s

The question that this thesis addresses is how western European countries with regulated labour markets managed to reduce their unemployment rates in the 1980s and 1990s. Most of the accounts in mainstream economics literature have been trying to explain this turnaround in performance in terms of labour market reforms that were undertaken in the direction of deregulation and by stressing potential interactions between such reforms in labour market policies, backing their claims with econometric evidence that is usually not robust. This thesis takes a different approach both theoretically and empirically. Theoretically, it develops the hypothesis that in open economies, coordinated collective wage bargaining can lead to moderate wage/price outcomes in the presence of conservative/stability oriented macroeconomic policies even in the presence of generous labour market protection policies. Moreover, in countries with regulated labour markets, the effectiveness of moderate bargaining outcomes and labour market reforms in combating unemployment will depend on the size and openness of the economy: the smaller and more open an economy is, the more effective moderate bargaining outcomes and labour market reforms will be in reducing the equilibrium rate of unemployment. This hypothesis is an alternative to the ‘deregulation thesis’ rather than a competing one. This hypothesis is explored and further qualified in this thesis through qualitative comparative analysis-QCA with fuzzy-sets and the detailed study of the cases of the Netherlands and Germany in the 1980s and the 1990s. The upshot of the analysis of this thesis is that the effects of labour market policies and institutions on labour market performance should be considered within the context of macro-level institutions (e.g. macroeconomic policies) and characteristics (e.g. openness to trade) if we want to accurately assess the need to reform them