from the usual statistical methodology which only considers the mean impact of institutions on
unemployment. Instead we address such questions as what is the effect of labor market institutions
and institutional complementarities at different levels of unemployment.
Using the current evidence we conclude in Section 5 by examining the main OECD claim that the
unemployment problem can be addressed by a comprehensive fundamental reform of labor market
institutions. We find that there is evidence to suggest, that labor market institutions cannot be
taken out of the broader institutional context in which they function. Thus, reform requires that
particular attention needs to be paid to the context in which institutions interact in determining
unemployment and that a one-size-fits-all reform may have unpredictable consequences. Since
labor market institutions seem to be deeply entrenched in the institutional fabric of society it seems
unlikely that fundamental reform is in fact possible.
2
An Institutional Political Economy Approach
Unlike macroeconomists’, political scientists’ study of unemployment often starts with an explicit
focus on political institutions. Overall, the modern comparative political economy has already made
significant contributions to our understanding of how political institutions interact with macroeco-
nomic forces to influence not only OECD unemployment but also the shape of OECD economies
in general. In an influential paper that set a standard for quantitative comparative analysis in the
filed, Cameron (1978) argued that the expansion of the public economies in European countries
is influenced not by economic and fiscal determinants but by partizan politics, centralization of
government institutions, and trade openness. Urging us to consider the interaction between the
parties of the Left and labor unions, Lange and Garrett (1985) argued that only when the Left is
in power and the unions are strong, can they positively affect economic performance. Moving from
the macroeconomy in general to unemployment in specific, Alt (1985) found evidence that political
institutions and economic regime constraints condition the effect of strategic political action on
unemployment, namely whether the change in government between the Left and the Right has long
term effects on unemployment. And exploring the reverse causal arrow between unemployment and
3
Convention