Understanding Labour Market Institutions

Gilles Saint-Paul
Authors registered in the RePEc Author Service: Richard B. Freeman

World Economics, 2000, vol. 1, issue 2, 73-87

Abstract: Labour market rigidities are often considered to be responsible for high unemployment in Europe. This paper outlines a theory explaining why they may be supported by the political system, and where their support comes from. Labour market rigidities are likely to arise as the outcome of microeconomic imperfections which allow incumbent employees to reap rents, and as a device to alleviate redistributive conflicts among groups of workers. Their support depends on the employed’s exposure to unemployment, the degree of underlying inequality in skills, and the responsiveness of employment to labour costs. It is shown that different labour market institutions, such as employment protection, wage rigidities, and unemployment benefits, may mutually reinforce each other, so that we expect to observe them together. Also discussed are implications for the timing and design of reform.

Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:wej:wldecn:16

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