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Wage Rigidity or Fiscal Redistribution? The Unemployment Bias of Time Consistent Redistributive Policies

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Author Info
Etienne Lehmann () (ERMES, University Paris 2 Panthéon Assas and IZA Bonn)

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Abstract

Because of Time Inconsistency considerations, policymakers underestimate the drawbacks of wage rigidity as a redistributive tool. Consequently, they redistribute inefficiently income from high to low skilled workers. They typically implement too much wage rigidity whereas other means (in particular fiscal transfers) could achieve the same redistributive goal with less perverse effect on unemployment. Time inconsistency is more likely due to lack of credibility than to the short-term horizon of policymakers. Hence, policymaking processes should be reformed towards more transparent and binding agreements between government and social partners.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2116.

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Length: 32 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2116

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Related research
Keywords: unemployment; inequality; wage rigidity; time inconsistency;

Find related papers by JEL classification:
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H2 - Public Economics - - Taxation, Subsidies, and Revenue
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Yann Algan & Pierre Cahuc & André Zylberberg, 2002. "Public employment and labour market performance," Economic Policy, CEPR, CES, MSH, vol. 17(34), pages 7-66, 04. [Downloadable!] (restricted)
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  2. Agell, Jonas & Lommerud, Kjell Erik, 1997. "Minimum wages and the incentives for skill formation," Journal of Public Economics, Elsevier, vol. 64(1), pages 25-40, April. [Downloadable!] (restricted)
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This page was last updated on 2009-12-7.

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