The Regulation of Labor

TLDR

The study investigates how labor markets are regulated across 85 countries through employment, collective bargaining, and social security laws. The authors analyze these regulatory frameworks across 85 countries. Richer countries regulate labor less than poorer ones, with left‑leaning politics and socialist or French legal origins linked to stricter regulations; heavier regulation correlates with larger informal economies, lower labor participation, and higher youth unemployment, challenging efficiency theories but aligning with legal transplantation theories.

Abstract

We investigate the regulation of labor markets through employment laws, collective bargaining laws, and social security laws in 85 countries. We find that richer countries regulate labor less than poorer countries do, although they have more generous social security systems. The political power of the left is associated with more stringent labor regulations and more generous social security systems. Socialist and French legal origin countries have sharply higher levels of labor regulation than do common law countries, and the inclusion of legal origin wipes out the effect of the political power of the left. Heavier regulation of labor is associated with a larger unofficial economy, lower labor force participation, and higher unemployment, especially of the young. These results are difficult to reconcile with efficiency and political power theories of institutional choice, but are broadly consistent with legal theories, according to which countries have pervasive regulatory styles inherited from the transplantation of legal systems.