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On the Determinants of Labour Market Institutions: Rent-Sharing vs. Social Insurance

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  • Jonas Agell

Abstract

What determines the structure of labour market institutions? This paper argues that common explanations based on rent sharing are incomplete; unions, job protection, and egalitarian pay structures may have as much to do with social insurance of otherwise uninsurable risks as with rent sharing and vested interests. In support of this more benign complementary hypothesis the paper presents a range of historical, theoretical, and cross-country regression evidence. The social insurance perspective changes substantially the assessment of often-proposed reforms of European labour market institutions. The benefits from eliminating labour market rigidities have to be set against the costs of reduced coverage of human capital related risk. The paper also argues that it is unclear whether the forces of globalisation, and the new economy, will really force countries to make their labour markets more flexible. While these phenomena may increase the efficiency costs of existing institutions, they may also make people more willing to pay a high premium to preserve institutions that provide insurance.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 384.

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Date of creation: 2000
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Handle: RePEc:ces:ceswps:_384

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Keywords: Labour market institutions; comparative historical evidence; Sweden; Massachusetts; rent seeking; social insurance; union models; cross-country regressions; openness; linguistic fractionalisation;

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  1. Sinn, Hans-Werner, 1996. "Social Insurance, Incentives and Risk Taking," Munich Reprints in Economics 19834, University of Munich, Department of Economics.
  2. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers 536, Harvard - Institute for International Development.
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  5. Agell, J. & Lommerud, K.E., 1990. "Union Egalitarianism As Income Insurance," Papers 1990a, Uppsala - Working Paper Series.
  6. Sinn, Hans-Werner, 1995. " A Theory of the Welfare State," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(4), pages 495-526, December.
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  17. Wacziarg, Romain & Alesina, Alberto, 1998. "Openness, Country Size and Government," Scholarly Articles 4553014, Harvard University Department of Economics.
  18. Alan Krueger, 1999. "From Bismarck to Maastricht: The March to European Union and the Labor Compact," Working Papers 803, Princeton University, Department of Economics, Industrial Relations Section..
  19. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  20. Rebecca M. Blank & Richard B. Freeman, 1993. "Evaluating the Connection Between Social Protection and Economic Flexib ility," NBER Working Papers 4338, National Bureau of Economic Research, Inc.
  21. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
  22. Krueger, Alan B., 2000. "From Bismarck to Maastricht: The March to European Union and the Labor Compact1," Labour Economics, Elsevier, vol. 7(2), pages 117-134, March.
  23. Eaton, Jonathan & Rosen, Harvey S, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 95(2), pages 357-64, September.
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Cited by:
  1. Ronnie Schöb, 2001. "Public Profit Sharing," UWO Department of Economics Working Papers 20012, University of Western Ontario, Department of Economics.
  2. Andersen, Torben M., 2005. "Product market integration, wage dispersion and unemployment," Labour Economics, Elsevier, vol. 12(3), pages 379-406, June.
  3. Wolfgang Ochel, 2002. "International Comparisons and Transfer of Labour Market Institutions," CESifo Working Paper Series 788, CESifo Group Munich.
  4. Thomas Eichner & Andreas Wagener, 2002. "Increases in Risk and the Welfare State," CESifo Working Paper Series 685, CESifo Group Munich.

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