Close families and flexible labor markets don’t go together. That’s the conclusion of a fascinating paper by a quartet of transatlantic economists. Their work should be required reading for all European politicians and for the economists and pundits around the world who seek to advise them.
One truth universally acknowledged in Europe today is that the countries of the south need to overhaul their labor markets: Rigid rules on hiring and firing and on the minimum wage are blamed for the high unemployment and subpar economic growth in these states.
Economists are right to point out that inflexible labor markets exact a high economic toll. So why has there been such resistance in countries like Spain and Italy to changes that would create more jobs and stronger growth? One classic answer is the ability of vested interests – workers who do have protected jobs – to defend their own cushy deal at the expense of everyone else. Another is political dysfunction.
Alberto F. Alesina, Yann Algan, Pierre Cahuc and Paola Giuliano – the four authors of “Family Values and the Regulation of Labor” – wondered whether deeper, cultural factors might also be at play.
In their cross-country comparison, the researchers found a correlation between close family ties and a preference for more regulated labor markets. In countries with weaker family ties, there was more support for more open labor markets.