Recent Labour Market Reforms: A Comparison of the 'Kiwi' and 'Polder' Models

Abstract

Unemployment remains a major economic and social problem in many developed economies. This paper is concerned with the impact of labour market reform as a means of combatting unemployment and of enhancing competitive wage determination. The paper focuses specifically on The Netherlands and New Zealand, two small open economies in which unemployment rates reduced to close to half of their respective post-1980 peaks, following reforms. The labour market policies that contributed to these outcomes are referred to as the 'Polder' model and the 'Kiwi' model respectively. Despite some similarities, there are significant differences between these models. These are highlighted in the paper. It is argued that the effects of deregulation are hard to separate out from other influences on the labour market. The success of the deregulation policies is easily overstated by a selective use of labour market indicators, or by making trough to peak comparisons along the business cycle.