Unemployment and Institutional
Complementarities:
The Case for Fundamental Reform within the OECD
∗
Matthew C. Harding
†
Department of Economics
MIT
Marcus Alexander
‡
Department of Government
Harvard University
Paper presented at the Annual Meeting of the American Political Science
Association, Chicago, Sept. 2-5, 2004.
Abstract
In this paper we examine how institutional complementarities affect the levels of unem-
ployment in OECD countries. Building on institutionalism in political science and the study
of labor market institutions in macroeconomics, we argue that a new political economy ap-
proach to unemployment must examine how political, social, and macroeconomic institutions
condition the effects labor market institutions have on unemployment. We examine the insti-
tutional complementarities in an expanded data set of OECD countries from 1960-1999, and
then extend our study by applying quantile analysis to the study of unemployment. Our results
suggest caution in following OECD’s recommendations for reform, and instead we argue for a
more fundemantal approach that embeds the puzzle of unemployment in deeper institutional
problems of political economy in OECD countries.·
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Introduction
This paper attempts to shed new light onto the discussion of the institutional determinants of
unemployment by incorporating ideas from the varieties of capitalism literature. The quintessential
puzzle of the heterogeneous economic experience of OECD countries over the past fifty years lies
in the fact that although we credit these countries with similar levels of economic and political
development, they have nevertheless had very different unemployment experiences. Most economists
∗
We thank Wendy Carlin, Andrew Glyn, Roger Koenker and David Soskice.
†
MIT, Department of Economics, 50 Memorial Drive, Cambridge, MA 02142; email: ## email not listed ##.
‡
Center for Basic Research in the Social Sciences, 34 Kirkland Street, Cambridge MA 02138;
email:
## email not listed ##.
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