The Quality of Labor Relations and Unemployment

In countries where wages are primarily set by collective bargaining, the effects on unemployment of changes in the economic environment depend crucially on the speed of learning of unions. This speed of learning is likely to depend in turn on the quality of the dialogue that unions have with firms, on what can more generally be called the quality of labor relations. In this paper, we examine the role this quality of labor relations has played in the evolution of unemployment across European countries over the last 30 years. We conclude that it has played an important role: Countries with worse labor relations have experienced higher unemployment. This conclusion remains even after controlling for labor institutions.