Is the OECD Jobs Strategy behind U.S. and British Employment and Unemployment Success in the 1990s?

Abstract The authors investigate the extent to which the logic of flexibility that underpins the OECD’s Job Study can explain the relative labor-market performance of the United States and the United Kingdom. Greater labor-market flexibility should be associated with relatively lower unemployment and higher employment of less-skilled workers, particularly young workers and those with lower levels of formal education: lower labor costs should “price” these workers back into jobs. Their principal findings call into question this central orthodox thesis. Labor market outcomes of both young and less-skilled workers in the flexible United States and United Kingdom are no better and frequently are far worse than those of their counterparts in most of the rest of the OECD. Regarding the U.K., Schmitt and Wadsworth conclude that “the serious restructuring of the country’s labor market since the early 1980s appears to have produced no noticeable improvement in the labor market prospects facing less-skilled workers in the 1990s relative to the 1980s.” Indeed, they find that all of the improvement in U.K. unemployment rates is accounted for, not by workers being priced into the labor market, but by workers dropping out of the labor market.