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

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  • Schöb, Ronnie

    () (Free University of Berlin)

  • Wildasin, David

    () (University of Kentucky)

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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Bibliographic 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: Nov 2003
Date of revision:
Publication status: published in: Regional Science and Urban Economics, 2007, 37(2), 141-164
Handle: RePEc:iza:izadps:dp945

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

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References

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  1. 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.
  2. Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
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Citations

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Cited by:
  1. Jonas Agell, 2002. "On the Determinants of Labour Market Institutions: Rent Seeking vs. Social Insurance," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 107-135, 05.
  2. Picard, Pierre M. & Wildasin, David E., 2011. "Outsourcing, labor market pooling, and labor contracts," Journal of Urban Economics, Elsevier, vol. 70(1), pages 47-60, July.
  3. David E. Wildasin, 2000. "Factor Mobility and Fiscal Policy in the EU: Policy Issues and Analytical Approaches," CESifo Working Paper Series 344, CESifo Group Munich.
  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.
  5. Jonas Agell, 2001. "Warum haben wir rigide Arbeitsmärkte? Rent-seeking versus Soziale Sicherung," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 2(4), pages 363-381, November.
  6. 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.

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