Do Labour Laws Increase Equality at the Expense of Higher Unemployment? The Experience of Six OECD Countries, 1970-2010

Using longitudinal data on labour law in France, Germany, Japan, Sweden, the UK and the USA for the four decades after 1970, we estimate the impact of labour regulation on unemployment and equality, using labour’s share of national income as a proxy for the latter. We employ a dynamic panel data analysis which distinguishes between short-run and long-run effects of legal change. We find that worker-protective labour laws in general have no consistent relationship to unemployment but are positively correlated with equality. Laws relating to working time and employee representation are found to have beneficial impacts on both efficiency and distribution