Labor market institutions and employment policies: the international experience

Abstract

This paper presents evidence that legal protection of property rights is indeed an important contributor to economic success but that institutional and legal protection of the rights of labor is also associated with economic success, particularly in developing countries. Cross-country analyses show that measures of labor protections have the same relation to economic efficiency, measured by GDP per capita, as measures of protection of property, and that both protection of property rights and protection of labor rights reduce economic inequality. The results suggest that as legal protection of property gives investors the right message about economic activity: invest in productive undertakings and you will gain the fruits of your investments; legal protection of labor gives workers the right message about economic activity: work and you will gain the fruits of your labor.