Formal or informal instutions? The mission of flexible labour markets

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2019-08-29
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en
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The most recent financial crisis showed the great diversity in the flexibility of labour markets across the OECD countries. In some countries, unemployment rates doubled, while the unemployment rates did not change in other countries. The OECD already recommended the increase of the flexibility of the labour market in their job studies in the year 1994, but after the most recent financial crisis, even more focus is put on increasing this flexibility. For example, the European Union advised its member states to increase the flexibility of their labour market last year (European Commission, 2018). But what determines this flexibility of the labour market? Are economic factors like formal institutions determining the flexibility of labour markets? Or should country-specific cultural characteristics, which can be measured by the four Hofstede (1984) dimensions, not be excluded from the analysis? Multiple regression analysis provides support for the latter explanation, as country-specific cultural characteristics play an important role in determining, for instance, the formal institutions of a country. The results provide clear evidence for the statement that both feminine societies as well as societies characterized by a high degree of uncertainty avoidance can more easily improve the flexibility of their labour markets through the mobility of labour. On the contrary, countries characterized by a low degree of uncertainty avoidance can more easily improve the flexibility of their labour markets through the flexibility of wages. However, institutional determinants like employment protection and unemployment benefits have almost no effect on the flexibility of the labour market. So, all the formal laws and rules, which government try to use in order to increase this flexibility, are almost neglectable. Concluding, it might be hard for some governments to try and increase the flexibility of their labour markets, as the country-specific cultural characteristics are not matching the cultural determinants of a flexible labour market.
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Faculteit der Managementwetenschappen