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This paper considers the relationship between labour law systems and general economic trends in developed market economies, including the recent financial crisis and resulting recession. Certain forms of labour law regulation, in particular working time and employment protection, are seen to have had beneficial economic effects in terms of employment and productivity growth in coordinated market regimes, where complementary capital market and governmental institutions are present. In liberal market regimes the effects of such laws are more mixed ; in the absence of complementary institutions, they may have induced productivity growth but at the expense of employment. Overall, the claim that labour law regulation induces labour market inefficiencies is not made out. Where labour law systems more clearly failed under neoliberalism was in acting as a countervailing force to income inequality and union decline. Growing inequalities of income and wealth, which were most extreme in liberal market systems but were not confined to them, formed part of the background conditions to the financial crisis of 2009. Under current conditions of recession there is a good case for strengthening labour law regulation in order to place a floor under wages and employment. In the longer run, a reorientation of labour law, moving away from a policy of flexibilisation, could contribute to the rebalancing of economies emerging from the failed neoliberal model of financially-driven growth. The current weakness of unions in many systems makes such an outcome less likely than it would otherwise be, although new opportunities for union engagement with both employers and governments may arise as the recession continues.