“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
Hans Christian Andersen
From about the mid-1980s through the 1990s, many policy analysts and economists concerned about excessively high unemployment in advanced 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 crosscountry data on which some proponents of the view relied was of dubious value. Indeed, in various Employment Outlook analyses post-1994, OECD economists themselves made clearer the fragility of the empirical support for some of the orthodox claims. Other analysts, usually country specialists, have known that the simple flexibility story does not explain the good 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 the