Institutions and economic performance: Evidence from the labour market

We analyse the institutional determinants of economic performance, taking E uropean labour-market institution as a case in point. European economic gro wth after thc Second War was based on Fordist technologies, a setting to wh ich the continent's institutions of solidaristic wage bargaining were ideal ly suited. They eased distributive conflicts and delivered wage moderation, which in turn supported high investment. The wage compression that was a c orollary of their operation was of little consequence so long as the domina nt technologies were such that firms could rely on a relatively homogeneous labour force. But as Fordism gave way to diversified quality production, w hich relied more on highly skilled workers, the centralization of bargainin g and the compression of wages became impediments rather than aids to growt h. Assuming that growth will rely even more in the future on rapidly changi ng, science-based, skilled-labour-intensive technologies, countries with ce ntralized labour-market institutions will have to move still further in the direction of decentralization. Whether Europe in particular carl accommoda te these demands will help to determine whether it is able to re-establish a full employment economy in the twenty-first century.