In this study, we ask why countries with similar labor market characteristics experience different occupational mobility levels and redistribution policies. We develop a politico-economic model that integrates occupational mobility affected by individual educational investments with voting on redistribution policies. It is shown that a rigid labor market will tend to produce multiple equilibria: a poor-majority equilibrium with lower mobility and higher redistribution and a rich-majority equilibrium with higher mobility and lower redistribution. However, a flexible labor market will tend to produce a unique, poor-majority equilibrium with high mobility and low redistribution, which supports the POUM (prospect of upward mobility) hypothesis. Deregulation in the labor market enhances mobility but may degrade social welfare.
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number
08-18.
Find related papers by JEL classification: D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
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John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001.
"The Survival of the Welfare State,"
Economics Working Papers
603, Department of Economics and Business, Universitat Pompeu Fabra.
[Downloadable!]
Other versions:
Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002.
"The Survival of the Welfare State,"
Seminar Papers
704, Stockholm University, Institute for International Economic Studies.
[Downloadable!]
John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Abrizio Zilibotti, 2003.
"The Survival of the Welfare State,"
American Economic Review,
American Economic Association, vol. 93(1), pages 87-112, March.
[Downloadable!]