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The Labour Market and Corporate Structure

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  • Acemoglu, Daron
  • Newman, Andrew

Abstract

This paper analyses the impact of labour demand and labour market regulations on the corporate structure of fims. It finds that higher wages are associated with lower monitoring, irrespective of whether these high wages are caused by labour market regulations, unions or higher labour demand. These comparative static results are in line with the broad trends in the data. The paper also finds that the organization of firms has important macroeconomic implications. In particular, monitoring is a type of ‘rent-seeking’ activity and the decentralized equilibrium spends excessive resources on monitoring. Labour market regulations that reduce monitoring by pushing wages up may increase net output or reduce it only by a small amount even though they reduce employment.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1708.

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Date of creation: Oct 1997
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Handle: RePEc:cpr:ceprdp:1708

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Related research

Keywords: Corporate Structure; Efficiency Wages; Labour Market Regulation; Monitoring; Moral Hazard;

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  1. Rebitzer, James B & Taylor, Lowell J, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1373-83, November.
  2. Calvo, Guillermo A & Wellisz, Stanislaw, 1979. "Hierarchy, Ability, and Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 991-1010, October.
  3. Daron Acemoglu, 1999. "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence," American Economic Review, American Economic Association, vol. 89(5), pages 1259-1278, December.
  4. Legros, Patrick & Newman, Andrew F., 1996. "Wealth Effects, Distribution, and the Theory of Organization," Journal of Economic Theory, Elsevier, vol. 70(2), pages 312-341, August.
  5. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 15-32, Summer.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  7. Richard B. Freeman & Edward P. Lazear, 1994. "An Economic Analysis of Works Councils," NBER Working Papers 4918, National Bureau of Economic Research, Inc.
  8. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  9. Lawrence F. Katz & Gary W. Loveman & David G. Blanchflower, 1995. "A Comparison of Changes in the Structure of Wages in Four OECD Countries," NBER Chapters, in: Differences and Changes in Wage Structures, pages 25-66 National Bureau of Economic Research, Inc.
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