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Labour Market Institutions and the Cohesion of the Middle Class

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  • Saint-Paul, G.

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.
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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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    Cited by:

    1. is not listed on IDEAS
    2. Wasmer, E., 1998. "Labour Supply Dynamics, Unemployment and Human Capital Investments," Papers 651, Stockholm - International Economic Studies.
    3. 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.
    4. Saint-Paul, Gilles, 2021. "Pareto-improving structural reforms," Journal of Economic Theory, Elsevier, vol. 194(C).
    5. 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:

    • 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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