DAVID R. HOWELL
The strength of the self-adjusting school depends on it having behind it almost the
whole body of organized economic thinking of the last hundred years.… “The
heretics” believe that common observation is enough to show that the facts do not
conform to the orthodox reasoning.… Now I range myself with the heretics.
John Maynard Keynes
With much of the developed world plagued by high levels of unemployment since the 1980s, it has become widely accepted that the answer is “structural reform” of the labor market. It is said that only with the lower labor costs and greater flexibility that follows from labor market deregulation and a smaller welfare state can there be hope of achieving anything close to full employment. Mainstream economists and leading policy and banking institutions like the OECD, the IMF, and the ECB1 have all strongly advocated such reforms, arguing that as firms are confronted by increasingly competitive, global markets, workers must adjust by accepting lower wages, stingier unemployment benefits, and less secure jobs. They have led the battle cry that policy makers must stand up to the insiders and special interests that ultimately undermine the employment-creating dynamism of free markets. Confronted by this conventional wisdom, policy makers have been caught between this “economic reality” and the popular and deeply embedded social norms that favor social regulation and the support of prevailing living standards, particularly concerning wages and job and income security.
This book takes a rather heretical view toward this orthodox free market prescription for good employment performance. The chapters that follow, authored by economists from seven European and North American countries, are unified by their focus on (and their answers to) several closely related questions: Does the available evidence really support the orthodox call for radical labor market deregulation? Is full employment really unattainable without American levels of wage inequality and job