Unemployment Hysteresis, Wage Determination, and Labor Market Flexibility: The Case of Belgium
This paper examines unemployment hysteresis in the Belgian labor market. It estimates models of wage determination using aggregate and firm-level panel data. The conclusions are: (i) the long-term unemployed do not exert a negative impact on wages; and (ii) the incumbent workers, the “insiders,” exercise market power in wage determination, taking greater account of their own interests than those of the unemployed “outsiders;” and (iii) the wage indexation system can cause a downward rigidity in real wages. Recent initiatives, including programs aimed at the long-term unemployed and the young, are appropriate in view of the existence of insider power.
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Volume (Year): 42 (1995)
Issue (Month): 4 (December)
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