Why Do National Labor Market Practices Continue to Diverge in the Global Economy? The “Missing Link” of Investment Rules*

How are we to understand what appear to be persistent differences in national economic practices? One way is through an analysis of the politically constructed “rules” that have been developed to govern markets in the major industrialized economies. Nationally based institutions and the power and agency they construct have a profound influence on private‐sector and state actors. This power can be put into play outside as well as inside territorial boundaries. In this article, I expand the theoretical connections between market governance institutions and labor market practices by (1) examining how governance regimes influence the content and degree of labor flexibility and (2) analyzing the U.S. corporate governance regime as a set of institutions that parallels those of the more “coordinated” economies. If corporate governance is taken as central to explaining differences in the flexibility of labor markets, then U.S. practices can be explained more coherently. These practices are not simply a result of the absence of strong labor institutions but derive from the incentives that influence firms in the U.S. corporate governance regime.