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Labour Market Institutions and the Cohesion of the Middle Class


  • Saint-Paul, G.


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.
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Suggested Citation

  • Saint-Paul, G., 1995. "Labour Market Institutions and the Cohesion of the Middle Class," DELTA Working Papers 95-30, DELTA (Ecole normale supérieure).
  • Handle: RePEc:del:abcdef:95-30

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    References listed on IDEAS

    1. Saint-Paul, Gilles, 1995. "Some political aspects of unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 575-582, April.
    2. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
    3. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
    4. Gilles Saint-Paul, 1993. "On the Political Economy of Labor Market Flexibility," NBER Chapters,in: NBER Macroeconomics Annual 1993, Volume 8, pages 151-196 National Bureau of Economic Research, Inc.
    5. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-579, December.
    6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    7. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
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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. 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



    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J49 - Labor and Demographic Economics - - Particular Labor Markets - - - Other
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General


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