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Unemployment Hysteresis, Wage Determination, and Labor Market Flexibility: The Case of Belgium

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  • Reza Moghadam
  • Caroline Van Rijckeghem

Abstract

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.

Suggested Citation

  • Reza Moghadam & Caroline Van Rijckeghem, 1995. "Unemployment Hysteresis, Wage Determination, and Labor Market Flexibility: The Case of Belgium," IMF Staff Papers, Palgrave Macmillan, vol. 42(4), pages 882-893, December.
    • Handle: RePEc:pal:imfstp:v:42:y:1995:i:4:p:882-893
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