Institutions and labour market performance in Western Europe

Labour market institutions in most European countries are caught mid-stream between flexibility and coordination. On the one hand, most countries fail to capture the positive externalities that may arise from the mutual interdependence of institutions and ground level labour market behaviour. Productive and commercial changes make it exceptionally difficult to create such coordination arrangements. At the same time, there has not been a widespread rejection of labour market institutions. This can be seen in the cautious and pragmatic manner with which most European countries approach the themes of flexibility and deregulation. The common pattern has been to mesh flexibility and regulation. Thus whilst institutions still matter their role should not be overstated. In many ways, a governance gap is emerging in the European labour market.