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Locational Competition versus Cooperation in Labor Markets: An Implicit Contract Reinterpretation

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  • Michael BURDA
  • Antje MERTENS

Abstract

The need for locational competition among labour markets arises when labour is immobile. At the same time market clearing under such conditions can lead to wage and income variability. In such cases demand for insurance against regional shocks arises, which can be provided by nationwide collective bargaining and other national institutions in the spirit of the implicit contract literature. In this interpretation, the desirability of locational competition depends on the nature of shocks which affect the regions. Real wage and other types of flexibility will be invoked by localities only in response to systematic shocks. We present evidence that West German and other European experiences are more consistent with an insurance contract interpretation, while US regional labour markets are characterized by high regional mobility, rendering insurance less relevant.

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Bibliographic Info

Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1994,32.

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Date of creation: 1994
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Handle: RePEc:zbw:sfb373:199432

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Cited by:
  1. Demertzis, Maria & Hallett, Andrew Hughes, 1998. "Asymmetric transmission mechanisms and the rise in European unemployment: A case of structural differences or of policy failures?," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 869-886, June.
  2. Büttner, Thiess, 1999. "Regional Stabilization by Fiscal Equalization? Theoretical Considerations and Empirical Evidence from Germany," ZEW Discussion Papers 99-23, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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