Howell-Fighting Unemployment_ The Limits of Free Market Orthodoxy-Oxford University Press
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Howell-Fighting Unemployment_ The Limits of Free Market Orthodoxy-Oxford University Press

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Howell-Fighting Unemployment_ The Limits of Free Market Orthodoxy-Oxford University Press

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Published 18 December 2018
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FIGHTING UNEMPLOYMENT
The Limits of Free Market Orthodoxy
Edited by
David R. HowellFighting UnemploymentFIGHTING UNEMPLOYMENT
The Limits of Free Market Orthodoxy
Edited by
David R. Howell
1
20051
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Copyright# 2005 by Oxford University Press, Inc.
Published by Oxford University Press, Inc.
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All rights reserved. No part of this publication may be reproduced,
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Library of Congress Cataloging-in-Publication Data
Fighting unemployment : the limits of free market orthodoxy / edited by David R. Howell.
p. cm.
Includes bibliographical references and index.
ISBN 0-19-516584-5; 0-19-516585-3 (pbk.)
1. Unemployment—Developed countries. 2. Free enterprise—Developed countries.
3. Labor market—Developed countries. I. Howell, David R.
HD5707.5.F54 2004
331.13'7'091722—dc22 2004049283
987654321
Printed in the United States of America
on acid-free paperForeword
‘‘But the emperor has nothing on at all,’’ cried the little child. And the people
began to whisper to one another what the child had said. ‘‘He hasn’t got
anything on.’’
Hans Christian Andersen
From about the mid-1980s through the 1990s, many policy analysts and
economistsconcernedaboutexcessivelyhigh unemployment inadvanced
European economies came to accept a particular view of the cause of
joblessness—that it was the result largely of insufficient flexibility in the
labor market in adapting to the changes brought about by technological
progress and globalization. The inflexible culprits were welfare state and
union policies intended to improve the economic position of lower-paid
workers. The solution to joblessness was not higher growth rates (though
everyone favors higher growth) but a range of changes to reduce the pay
and economic security of lower-paid workers while lowering the taxes on
higher-paid workers and deregulating business. In its 1994 Jobs Study, the
Organization for Economic Cooperation and Development (OECD)
encapsulated this perspective and called for market-oriented changes that
many economies have indeed undertaken.
The evidence for the Jobs Study orthodoxy was and remains at best
mixed. Many economists have known that the time-series and
crosscountrydataonwhichsomeproponentsoftheviewreliedwasofdubious
value.Indeed,invariousEmploymentOutlookanalysespost-1994,OECD
economists themselves made clearer the fragility of the empirical support
for some of the orthodox claims. Other analysts, usually country
specialists,haveknownthatthesimpleflexibilitystorydoesnotexplainthegood
or poor performance of their national economies. How else to account
for the success in employment of Scandinavian countries, the failure of
New Zealand, which massively revamped its economic system along
orthodox lines, the superior performance of Ireland compared to thevi Foreword
United Kingdom, and the success of the United States compared to
economic near-clone, Canada?
But the orthodox message was a simple one that embodied virtues that
nearly everyone wants—economic flexibility and adaptability. With the
failure of communist command economies, the term ‘‘economic reform’’
took on a distinct meaning—market-oriented reforms that freed business
decision makers from social regulation. Orthodox economic advisers
declared that if more power were given to financial and global markets,
these same advisers could make the most magnificent economy that one
could imagine—outcomes of most beautifulcolors and elaborate patterns.
Moreover, such markets, operating under their own rules, had the
special power of being invisible to everyone who was stupid or not fit for his
post. Minister of finance, prime minister, president—can’t you see the
power of the invisible hand to solve all problems? Are you stupid or not
fit for your post? Are you against reforms?
This volume brings together econometric analysis of the time-series
evidence on which the orthodox view of OECD joblessness has relied and
country case studies that make it clear that the emperor of orthodoxy is
not wearing the magnificent suit of policy panaceas claimed. The volume
deserves serious attention from researchers and policy makers, including
(perhaps most especially) those who believe in the orthodox view. The
book is chock full of facts and judicious interpretation that represent a
compelling challenge to orthodox thinking. There is none of the
ideological ranting or raving or sound bite claims that often enter debate for or
against orthodox thinking. Rather, there is detailed objective analysis that
makes for the best economics. The message from the volume is a more
complex one than the simple structural reform story told in the OECD
Jobs Study and accompanying work. Ideally, adherents of the orthodox
view will respond to the facts and arguments given here, rather than
repeat the mantra that the emperor’s new clothes are indeed splendid. It is
through such dialogue that economists and policy makers will be able to
rethinktheJobsStudyorthodoxyandfindbettersolutionstooureconomic
problems.
Atthiswriting,inadifferentareaofeconomicpolicy,sucharethinking
is going on. The Washington Consensus view of globalization and
development is in tatters, done in not by politics but by the cumulation of
evidence on the link between orthodox trade policies and economic
success inless developed countries analogous to that given inthis volume on
the link between orthodox reforms in OECD countries and employment
andgrowth.Ibelievethat theorthodoxanalysisoflabormarketflexibility
and deregulation has a bit more clothing on than the Washington
Consensus analysis of development. This is reflected in the judicious tone of
this volume, as opposed to the more raucous tone of critics of IMF and
Washington Consensus policies. But while Howell and his team are not
screaming‘‘Theemperor isnaked’’;they have mounted amajor challengeForeword vii
to orthodox thinking. Courtiers, lord high chamberlains, economic
advisers, and ministers, pay attention. Marching down the street in your
underwear is not a whole lot better than having nothing on at all.
Richard Freeman
London School of EconomicsThis page intentionally left blank Acknowledgments
This project grew out of my research on wage inequality in the United
States.Themainstreamviewinthe1990swasthatitwasprettyself-evident
thatthe explosion inU.S.earnings inequalitywas the result ofacollapsein
the demand for less-skilled workers, an outgrowth mainly of skill-biased
technological change. This view never seemed very convincing. Rather, it
seemed that ideological shifts toward market solutions and closely linked
weakeningofprotective regulationsand institutions (e.g.,minimum wages
andunions)wereanimportantpartofthestory.Alargeandsteadysupply
of foreign labor may also be important, at least in some regions. But this
alternative view suggests a ‘‘European’’ type of solution—more
regulations, more collective and coordinated bargaining, and more social
protection spending—and therefore, according to the conventional wisdom,
much higher unemployment! Did persistent high unemployment really
follow ineluctably from a more regulated and sheltered labor market?
Work began on this ‘‘unemployment and labor market institutions’’
project in the mid-1990s. With a grant to David Gordon by the John D.
and Catherine T. MacArthur Foundation to study the effects of
globalization on the welfare state, the project came under the umbrella of the
Center for Economic Policy Analysis (CEPA), which is affiliated with the
New School University’s economics department. I want to thank my
colleagues at CEPA, Lance Taylor and Will Milberg, for their consistent
support andgood advice,and theMacArthurFoundation foritsgenerous
financial support.
Whilethisprojecthasproducedwonderfulcollaborations(moreonthis
later), it has endured the tragic, premature passing of two close friends,