LEARNING OBJECTIVES
After you have read this section, you should be able to answer the following questions:
What are common forms of government intervention in labor markets?
Why do governments intervene in labor markets?
The employment and unemployment experience of Europe is quite different from that of the United States. We have developed some frameworks that help us understand the sources of these differences. But we have not yet really addressed the question at the heart of this chapter: what is the impact of different labor market policies in the two places?
Government interventions in the labor market are commonplace in most European countries. In Europe, there are many examples of restrictions on hiring, firing, the closing of plants, and so forth. There are some restrictions of this kind in the United States as well but not to the extent that we observe in Europe. In part this is because public opinion in Europe is more supportive of such regulations, as compared to the United States. For example, in 2003, the French food producer Danone decided to close two unprofitable factories in France. This news, which would almost certainly have been unexceptionable in the United States, led to massive protests, boycotts, and condemnation by politicians.
Europe is not the only part of the world in which governments intervene directly in labor markets. Labor regulations have recently been under consideration in China as well. [***Joseph Kahn and David Barboza, “China Passes a Sweeping Labor Law,” New York Times, World Business, June 30, 2007, accessed June 30, 2011,http://www.nytimes.com/2007/06/30/business/worldbusiness/30chlabor.html.***]
The new labor contract law, enacted by the Standing Committee of the National People’s Congress, requires employers to provide written contracts to their workers, restricts the use of temporary laborers and makes it harder to lay off employees.
Because of China’s communist history, most workers are not represented by labor unions. It is the government that steps in to represent workers. The need to do so is enhanced by the increasing share of private rather than publically owned firms in China’s economy.
We finish this chapter by considering some of the policies that have been adopted by governments in an attempt to influence the functioning of labor markets. We are interested both in why policymakers think these policies are a good idea and in the effect of these policies on the economy.
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