Gayle Allard and the ever-interesting Peter Lindert write:
How have labor market institutions and welfare-state transfers affected
jobs and productivity in Western Europe, relative to industrialized
Pacific Rim countries? Orthodox criticisms of European government
institutions are right in some cases and wrong in others. Protectionist
labor-market policies such as employee protection laws seem to have
become more costly since about 1980, not through overall employment
effects, but through the net human-capital cost of protecting senior
male workers at the expense of women and youth. Product-market
regulations in core sectors may also have reduced GDP, though here the
evidence is less robust. By contrast, high general tax levels have shed
the negative influence they might have had in the 1960s and 1970s.
Similarly, other institutions closer to the core of the welfare state
have caused no net harm to European jobs and growth. The welfare
state’s tax-based social transfers and coordinated wage bargaining have
not harmed either employment or GDP. Even unemployment benefits do not
have robustly negative effects.
These are underexplored but not easy to explore questions; here is the paper.
I would feel better if Ireland were removed from the data set, since a booming economy can afford many sins. After this adjustment, coordinated bargaining wouldn’t look as good. And when we calculate average productivity, should not the unemployed count for "zero productivity," or even negative, in the appropriate measure? I believe that tax rates matter, but only at particular thresholds.
I also would like to argue the following: "Don’t think we can pick and choose the egalitarian interventions which turn up as the very best in econometric studies. We are unlikely to know in advance which policies are the least harmful and politics is even less likely to turn those proposals into legislation."
But would I be committing The Libertarian Vice?