Corporatism Run Amok: Job Stability and Industrial Policy in Belgium and the United States

Abstract

Corporatism Jonathan S. Leonard and Marc Van Audenrode In explaining high and persistent unemployment in Western Europe, as compared to the United States, this article shifts the emphasis away from the now familiar institutions and policies directly related to the labour market. Instead, it focuses on the active and pervasive industrial policies which distinguish many European countries from the United States. During the seventies and eighties, a large share of European countries' industrial policy has been directed towards schemes to help declining firms and industries. Using the example of Belgium, we show that this policy of supporting declining industries has actually contributed to higher unemployment, through two channels. First, the subsidization of failing firms has imposed a tax on growing firms, which has contributed to the freezing of the labour market and to low levels of job creation. Second, by partially insuring against the threat of business failure, the policy has contributed to the rapid growth of real wages.

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