Political Parties, World Demand, and Unemployment: Domestic and International Sources of Economic Activity

Abstract

This article replicates and extends earlier work on the politics of macroeconomic policy by considering political effects on unemployment in 14 western industrial nations between 1960 and 1983. Changes of party control of government display broadly the expected effects, namely that unemployment falls under left-wing governments and rises under right-wing governments. However, the principal conclusions of this article are that partisan effects on unemployment in open economies (that is, economies heavily dependent on trade with other countries) can only be satisfactorily estimated relative to the constraint imposed by the level of world economic activity, and that in addition to politicians' strategic incentives, political institutions and economic regime constraints also determine whether partisan effects on unemployment will be sustained, transitory, or absent. With respect to the latter, on the whole no effects are found where no such effects were promised by the new government before taking office; where one-party or dominant-partner coalitions form, the effect on unemployment is transitory, whereas where broad coalitions form, it is sustained or absent. Finally, ceteris paribus, any partisan effects are more likely where governments secure parliamentary majorities.