Labor Markets: Why employment performance differs
It is not only labor markets but also product market regulations that chiefly determine a nation’s employment
WILLIAM W. LEWIS, RENÉ LIMACHER, AND MICHAEL D. LONGMAN
1994 Number 4
We're sorry, exhibits are not available for this article.
Unemployment is widely viewed as the gravest economic problem for most industrial countries. In Europe, it has
climbed steadily for the past 25 years to reach a postwar high (Exhibit 1). In the United States, it has been cyclical,
with an average below that of Europe for the past decade. Japan has so far experienced low unemployment,
although the early stages of economic reform and the recent rise in the numbers of the jobless suggest there is a
risk that it will grow in the future.
Much research has attempted to determine the causes of unemployment. Most of it has focused on macro analysis
of the labor market. Though its findings are based on sound economic principles, the evidence available to test
them is not conclusive. Despite references to the possible impact on unemployment of the markets for goods and
services (product market) and for capital, no work to date has been able fully to determine this impact. To test
conclusions about the labor market's effect on unemployment, and to investigate the role played by product and
capital markets, the McKinsey Global Institute studied employment performance in France, Germany, Italy, Spain,
Japan, and the United States from 1980 to the early 1990s.
We conducted analysis both at the level of the
national economy and within seven industries: automotive, computers, furniture, banking, general merchandise
retailing, film /TV/video, and construction. (
pp. 9–15 for case summaries.)
Our principal findings are:
Japan and the United States have lower unemployment than Europe because they have created jobs in
the market part of their economy, whereas European countries have lost jobs in theirs (Exhibit 2 and Exhibit 3).
Product market restrictions were as important, if not more so, than workforce rigidity in explaining why job
creation in Europe was below that in the United States, especially in high-growth service industries.