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Labour Market Institutions and the Cohesion of the Middle Class

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  • Saint-Paul, Gilles

Abstract

We develop a simple model to study how relative wage rigidity affects equilibrium taxation. It is argued that relative wage rigidity, by compressing incomes within the middle class, leads to a lower degree of redistributive conflict within the politically important core of society, even though income inequality may increase for society as a whole. In the model, people vote first on wage rigidity and second on redistributive taxation. The rigid society has a lower tax rate than the flexible one. it is supported by the 'middle-class' in the first stage, while the poor, the rich and the unemployed suffer from it.

Suggested Citation

  • Saint-Paul, Gilles, 1995. "Labour Market Institutions and the Cohesion of the Middle Class," CEPR Discussion Papers 1298, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1298
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    Cited by:

    1. Wasmer, Etienne, 1998. "Labor Supply Dynamics, Unemployment and Human Capital Investments," Seminar Papers 651, Stockholm University, Institute for International Economic Studies.
    2. Schob, Ronnie & Wildasin, David E., 2007. "Economic integration and labor market institutions: Worker mobility, earnings risk, and contract structure," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 141-164, March.
    3. Saint-Paul, Gilles, 2021. "Pareto-improving structural reforms," Journal of Economic Theory, Elsevier, vol. 194(C).
    4. Maya Bacache-Beauvallet & Etienne Lehmann, 2008. "Minimum wage or negative income tax: why skilled workers may favor wage rigidities," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(1), pages 63-81, March.

    More about this item

    Keywords

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    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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