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The Political Economy Of Flexicurity

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  • Tito Boeri
  • J. Ignacio Conde-Ruiz
  • Vincenzo Galasso

Abstract

We document the presence of a trade-off between unemployment benefits (UB) and employment protection legislation (EPL) in the provision of insurance against labor market risk. Different countries' locations along this trade-off represent stable, hard to modify, politico-economic equilibria. We develop a model in which individuals determine the strictness of EPL and the size of a redistributive UB system in two distinct political environments. Agents are heterogeneous along two dimensions: employment status -insiders and outsiders - and skills - low and high. Unlike previous work on EPL, we model employment protection as an institution redistributing also among insiders, notably in favour of the low-skill workers. A key implication of the model is that flexicurity configurations with low EPL and high UB should emerge in presence of dispersed wage structures and progressive UB systems. Micro data on wage dispersion display correlations consistent with our results. The analysis of the experience of EPL reformers yields results which are in line with the relation between EPL and progressiveness of the UB system implied by our model.

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Bibliographic Info

Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 10 (2012)
Issue (Month): 4 (08)
Pages: 684-715

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Handle: RePEc:bla:jeurec:v:10:y:2012:i:4:p:684-715

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  1. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
  2. Tito Boeri & Pietro Garibaldi, 2007. "Two Tier Reforms of Employment Protection: A Honeymoon Effect?," Carlo Alberto Notebooks 37, Collegio Carlo Alberto.
  3. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
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  8. André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
  9. John Roemer, 2003. "The Democratic Political Economy Of Progressive Income Taxation," Working Papers 9711, University of California, Davis, Department of Economics.
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  13. Tito Boeri & Axel Börsch-Supan & Guido Tabellini, 2001. "Would you like to shrink the welfare state? A survey of European citizens," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 7-50, 04.
  14. Saint-Paul, Gilles, 1999. "The Political Economy of Employment Protection," CEPR Discussion Papers 2109, C.E.P.R. Discussion Papers.
  15. Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
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