Politics and unemployment in industrialized democracies

This paper provides an empirical appraisal of the influence of politics on the evolution of unemployment rates in 13 industrialized democracies (12 Eu ropean Union countries and the U.S.) from 1960 to 1999. We conduct new test s of opportunistic and partisan business cycle models, using richer data an d more general specifications than previous studies. In contrast to most pr evious studies, we pay particular attention to the importance of labor mark et structure in conditioning the influence of politics on unemployment. We also investigate the relationship between political stability and economic stability. The results suggest the existence of partisan effects, with higher unemploy ment rates prevailing under "right'' parties than "left'' parties. There is more support for "rational'' partisan models that embody transient partisa n impacts than for models with permanent effects. We find evidence that uni on power is associated with higher average unemployment rates, but that cen tralized bargaining institutions tend to lower unemployment rates. The evid ence also suggests that more fragmented coalition governments are associate d with higher unemployment rates than single party governments.