INSTITUTIONS AND LABOR REALLOCATION

Despite stringent dismissal restrictions in most European countries, r ates of job creation and destruction are remarkably similar across Eur opean and North American labor markets. This paper shows that relative -wage compression is conducive to higher employer-initiated job turnov er, and argues that wagesetting institutions and job-security provisio ns differ across countries in ways that are both consistent with rough uniformity of job turnover statistics and readily explained by intuit ive theoretical considerations. When viewed as a component of the mix of institutional differences in Europe and North America, European dis missal restrictions are essential to a proper interpretation of both s imilar patterns in job turnover and marked differences in unemployment flows. (C) 1997 Elsevier Science B.V.