Exploring the Political Economy of Labour Market InstitutionsMany economists argue that the European unemployment problem arises from labour-market rigidities. This paper argues that many of those inflexibilities (and the underlying institutional regulations) can be understood as the outcome of political influence by incumbent employees. This is because many policies that increase unemployment actually benefit these insiders. An empirical investigation of the determinants of labour-market institutions reveals evidence which is consistent with this view. The findings imply: (1) higher exposure of the employed to unemployment facilitates a reduction of the level of employment protection; (2) unemployment benefits are lower, the more employment reacts to wages; (3) a higher level of unemployment and the existence of a right-wing government slow down the growth rate of the minimum wage.

The Economic Impact of Minimum Wages in EuropeOpponents of minimum wages argue that they hurt jobs in Europe; supporters say that they combat exploitation and help the poor. Coherent theoretical cases can be made for both sides of the argument. Differing policy prescriptions reflect different views of how the labour market actually works. This paper tries to sort out myth from reality by examining the evidence. First, relative to average wages, minimum wages have not risen in Europe over the last 30 years. Second, minimum wages caused higher unemployment only if they prevented a necessary fall in the wages of the low paid. Third, minimum wages for young workers are often a lower proportion of average earnings in Europe than in the United States. Fourth, no general evidence is found that minimum wages reduced unemployment, except perhaps for young workers. The effects of minimum wages – good or bad – have been exaggerated.

The Future of Value-added Tax in the European UnionThe current VAT regime in the European Union, introduced with the removal of fiscal frontiers in 1993, is explicitly transitional. This paper considers the issues that arise in designing a ‘definitive’ regime. The two most widely canvassed options – adoption of a clearing house, or a shift to origin taxation – are both found wanting. The paper develops an alternative strategy, combining a harmonized rate of VAT on transactions between firms (both between and within member states) with national discretion over rates applied to final sales. It is argued that this offers the prospect of some real improvement on current arrangements.

Export Performance In Transition EconomiesThis article examines export performance in the transition economies of Central and Eastern Europe and the former Soviet Union. It creates an index of export performance and asks how good performers differ from bad ones in terms of policy and circumstances. It finds that early success in exporting requires that stabilization and liberalization be pursued simultaneously. Neither liberalizing the foreign-trade regime alone, nor drastic devaluations of domestic currencies, will improve trade performance unless domestic prices are decontrolled, inflationary expectations lowered and direct, administrative controls over the economy relaxed. Within the foreign-trade regime, removing export controls appears a more immediate priority than relaxing import controls, because the former induce undervaluation, which, in turn, offers high levels of protection and effectively insulates domestic producers and consumers from international markets.

Market Opening, Regulation and Growth in EuropeLack of urgency explains why continental Europe trails in the deregulation process. Yet there are lessons to be learned from deregulation elsewhere. This paper focuses on the political preconditions for successful deregulation. It finds a clear negative relationship between regulation and economic performance. It characterizes European countries by the degree of regulation of labour and product markets and finds that the latter seems to be more important for economic performance. It also notes the importance of proper ‘packaging’ of the deregulation effort - which may include some re-regulation. Deregulation is more likely to succeed the more encompassing and transparent it is.

Enterprise Unionism: The Japanese System at WorkThe Japanese labour market has worked quite well over the last decades, whereas the European economies have produced sustained high unemployment. A popular hypothesis is that this difference can be attributed to unions. In Europe, unions are strong and centralized and do not care about the individual firm, but the Japanese unions are enterprise unions which directly deal with and understand the local management. Employers in Japan, in turn, consult unions and employees on all relevant management decisions. This corporatism finally ensures that workers are more motivated and, hence, more productive. The paper conjectures that the presence of unions increases the ‘voice’ of the employees significantly and proves the point by using innovative new firm data. Hence, Japanese enterprise unions are not harmful, but foster information sharing and contribute to enterprise performance.

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