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Economic Integration and Labor Market Institutions: Worker Mobility, Earnings Risk, and Contract Structure

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Author Info
Schöb, Ronnie (University of Magdeburg)
Wildasin, David E. () (University of Kentucky and IZA Bonn)

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Abstract

This paper investigates the effects of labor market integration, in the form of worker mobility, in a model with long-term labor contracts that lead to wage rigidities and unemployment. Reflecting the interdependence of regional labor markets, we develop a general-equilibrium framework where the contract structure is simultaneously determined in all regions. It is shown that increased mobility leads to more flexible labor market institutions in which firms can more easily vary the level of employment in response to fluctuations in demand. Economic integration is potentially Pareto-improving but, in the absence of a system of compensation, workers are harmed by greater labor mobility while the owners of firms benefit from higher profits.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 945.

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Length: 38 pages
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:iza:izadps:dp945

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Related research
Keywords: migration; unemployment; labor market integration; risk;

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Find related papers by JEL classification:
R0 - Urban, Rural, and Regional Economics - - General
J1 - Labor and Demographic Economics - - Demographic Economics
J6 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies

This paper has been announced in the following NEP Reports:

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. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
    Other versions:
  2. Leslie, Derek, 1992. "Insider-Outsider Theory and the Case for Implicit Contracts," Economic Journal, Royal Economic Society, vol. 102(410), pages 37-48, January. [Downloadable!] (restricted)
  3. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-88, August. [Downloadable!] (restricted)
  5. Bertola, Giuseppe, 1999. "Microeconomic perspectives on aggregate labor markets," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 45, pages 2985-3028 Elsevier. [Downloadable!] (restricted)
  6. Ethier, Wilfred J, 1985. "International Trade and Labor Migration," American Economic Review, American Economic Association, vol. 75(4), pages 691-707, September. [Downloadable!] (restricted)
  7. Hart, Oliver D, 1983. "Optimal Labour Contracts under Asymmetric Information: An Introduction," Review of Economic Studies, Blackwell Publishing, vol. 50(1), pages 3-35, January. [Downloadable!] (restricted)
  8. Gilles Saint-Paul, 1996. "Labor market institutions and the cohesion of the middle class," International Tax and Public Finance, Springer, vol. 3(3), pages 385-395, July. [Downloadable!] (restricted)
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  9. Shin, Kwanho, 1997. "Inter- and Intrasectoral Shocks: Effects on the Unemployment Rate," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 376-401, April. [Downloadable!] (restricted)
  10. Baily, Martin Neil, 1977. "On the Theory of Layoffs and Unemployment," Econometrica, Econometric Society, vol. 45(5), pages 1043-63, July. [Downloadable!] (restricted)
  11. Beaudry, Paul & DiNardo, John, 1995. "Is the Behavior of Hours Worked Consistent with Implicit Contract Theory?," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 743-68, August. [Downloadable!] (restricted)
  12. Gordon, Donald F, 1974. "A Neo-Classical Theory of Keynesian Unemployment," Economic Inquiry, Oxford University Press, vol. 12(4), pages 431-59, December.
  13. Saint-Paul, Gilles, 1997. "The Rise and Persistence of Rigidities," CEPR Discussion Papers 1571, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Nickell, Stephen, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer. [Downloadable!] (restricted)
  15. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Blackwell Publishing, vol. 41(1), pages 37-50, January. [Downloadable!] (restricted)
  16. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-76, February. [Downloadable!] (restricted)
    Other versions:
  17. Agell, J. & Lommerud, K.E., 1990. "Union Egalitarianism As Income Insurance," Papers 1990a, Uppsala - Working Paper Series.
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  18. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December. [Downloadable!] (restricted)
  19. Grossman, Sanford J & Hart, Oliver D, 1981. "Implicit Contracts, Moral Hazard, and Unemployment," American Economic Review, American Economic Association, vol. 71(2), pages 301-07, May. [Downloadable!] (restricted)
  20. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October. [Downloadable!] (restricted)
  21. Taylor, Mark P, 1987. "The Simple Analytics of Implicit Labour Contracts," Bulletin of Economic Research, Blackwell Publishing, vol. 39(1), pages 1-27, January.
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Cited by:
(explanations, 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. Lars Calmfors & Giancarlo Corsetti & Michael P. Devereux & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2008. "Chapter 3: The effect of globalisation on Western European jobs: curse or blessing?," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 71-104, 02. [Downloadable!]
  2. David E. Wildasin, 2000. "Factor Mobility and Fiscal Policy in the EU: Policy Issues and Analytical Approaches," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  3. Sinn, Hans-Werner, 1999. "Inflation and Welfare: Comment on Robert Lucas," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  4. Poutvaara, Panu, 1999. "Federation's alternative tax constitutions and risky education," ZEW Discussion Papers 99-42, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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