Adjusting to the Law: The Role of Beliefs in Firms' Responses to Regulation

Firms may find competitive adjustment difficult because they are hamstrung by rigid labor market rules. However, such difficulties may also be caused by conflicts between strategic choices in the management of human capital and the opportunities and limitations created by a given regulatory framework. This latter possibility has been almost totally ignored in the debate regarding the urgency and content of labor market reforms in countries whose labor market institutions have been labeled as "rigid" by international experts. This article uses the results of qualitative interviews with Spanish employers to suggest that strategic choices may be far more important in determining the consequences of labor market institutions than is generally recognized. I show that these choices are often the result of beliefs about how labor market institutions should work. These findings suggest that supposedly "neutral" calls for greater efficiency in labor market institutions are really arguments about the relative appropriateness of different expectations regarding how firms should pursue adjustment, expectations that are directly related both to the relative balance of power between employers and workers and to the structure of their relationship. In other words, the phrase "politics of labor market reform" should be understood to refer not only to the political consequences of reforms but also to the inherently political nature of the reforms themselves.

Adjusting to the Law: The Role of Beliefs in Firms' Responses to Regulation Articles