On the Benefits from Rigid Labour Markets: Norms, Market Failures, and Social Insurance
The common view that far-reaching labor market deregulation is the only remedy for high European unemployment is too simplistic. First, the evidence suggests that deeply rooted social customs are an important cause of wage rigidity, going beyond the legal constraints emphasized in the political debate. Second, in a second-best setting, a compressed wage structure may generate an efficiency gain. Finally, based on simple plots of the relation between labor market institutions and openness in OECD countries, the author concludes that the globalization of economic activity may lead to increased demand for various labor market rigidities.
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Volume (Year): 109 (1999)
Issue (Month): 453 (February)
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