Chapter 3 takes up the question of the robustness of the cross-country evidence for the orthodox claim that labor market institutions explain the pattern of unemployment across the affluent countries. A detailed survey of the most influential cross-country statistical studies finds a wide range of results that are highly sensitive to the nature of the variables, the time period, and the econometric method employed. Simple scatter plots of unemployment against six standard measures of labor market institutions for five-year periods between 1980 and 1999 show no significant relationships. In their multivariate tests, which follow standard approaches, the authors find weak and even perverse effects of the standard institutional variables. They conclude that “the empirical case has not been made that could justify the sweeping and unconditional prescriptions for labor market deregulation which pervade much of the policy discussion.”

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This chapter focuses on the six major OECD countries — France, Germany, Italy, Japan, United Kingdom, and United States — during the ‘golden age’ and its aftermath. It follows the ‘regulation’ approach invented by French economists such as Michel Aglietta, Robert Boyer, and Alain Lipietz, and developed as well by Americans such as David Gordon and Michael Piore. It highlights the emphasis on the interaction of internal and external forces, forces operating within each country and forces operating in the international arena. It discusses how once mutually reinforcing institutional structures became mutually destructive.

We investigate the relationship between export market shares and relative unit labour costs using a long panel of 12 manufacturing industries across 14 OECD countries. We ask how sensitive are export market shares to changes in relative costs and what determines this sensitivity? Both costs and embodied technology are important, but neither can fully explain changing export positions. We explore whether residual country‐specific trends might be linked to ‘deep’ structural features of economies. Sensitivity to labour costs is lower in high tech industries and core ERM countries. Industry elasticities have increased, especially in industries subject to increasing product market competition.

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