On the Political Economy of Labor Market Flexibility
In: NBER Macroeconomics Annual 1993, Volume 8
This paper starts from the observation that despite their very high levels of unemployment, major European countries have devoted few resources to reducing it. This suggests that there is little political concern about high unemployment. I develop a model where the government tries to increase employment by increasing labour market flexibility, and where any reform must pass majority voting. It is shown that the employed will block a complete reform of the labour market. A two-tier system will eventually generate consensus over the reform, however. In the long run, when the two-tier system prevails, political support gradually builds up in favour of further increases in flexibility. This creates a time-consistency problem, however, putting bounds on the reform that can be implemented ex ante . The model may generate complementarities between the economic system and the political system and lead to multiple equilibria. I also review various pieces of evidence, which lend support to the hypotheses brought up in the paper.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
11000.||Handle:|| RePEc:nbr:nberch:11000||Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
- Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-party System as a Repeated Game," Scholarly Articles 4552531, Harvard University Department of Economics.
- James B. Rebitzer & Lowell J. Taylor, 1991. "A Model of Dual Labor Markets When Product Demand Is Uncertain," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1373-1383.
- M. Dewatripont & G. Roland, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 703-730.
- Samuel Bentolila & Giuseppe Bertola, 1990. "Firing Costs and Labour Demand: How Bad is Eurosclerosis?," Review of Economic Studies, Oxford University Press, vol. 57(3), pages 381-402.
- Bean, Charles R, 1994.
"European Unemployment: A Survey,"
Journal of Economic Literature,
American Economic Association, vol. 32(2), pages 573-619, June.
- Saint-Paul, Gilles, 1991. "Dynamic labor demand with dual labor markets," Economics Letters, Elsevier, vol. 36(2), pages 219-222, June.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:11000. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.