IDEAS home Printed from
   My bibliography  Save this paper

International Political Spillovers: the case of labor market regulation


  • Giovanni Pica


This paper explores how the political support for Labour Market Regulation (LMR) is affected by economic and political integration in a two country OLG model. We model LMR as wage regulation and analyse three institutional settings: Autarchy, Economic Union and Political Union. In Autarchy capital cannot flow across borders and each country sets its most preferred level of regulation. In the Economic Union capital markets are integrated, while political decisions are not. In the Political Union a common level of LMR is set at a centralized level. In Autarchy, LMR may endogenously arise if the economy is dynamically efficient. In this case, despite the distortions generated in the labour market, LMR increases the welfare of the young, because it raises their permanent income, their savings and the steady state capital stock. In the Economic Union, capital outflows make the implementation of LMR more costly and provide incentives for each country to undercut the rival in order to attract capital.Thus, a race-to-the-bottom takes place and the steady state level of LMR decreases, harming the young individuals. The Political Union restores, under symmetry, the autarchic outcome and welfare levels. The asymmetric case is also analysed.

Suggested Citation

  • Giovanni Pica, 2003. "International Political Spillovers: the case of labor market regulation," EUI-RSCAS Working Papers 12, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  • Handle: RePEc:erp:euirsc:p0079

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    File URL:
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    1. Kruse, D. C., 1980. "Monetary Integration in Western Europe," Elsevier Monographs, Elsevier, edition 1, number 9780408106665 edited by DuchĂȘne, François.
    2. Putnam, Robert D., 1978. "Interdependence and the Italian Communists," International Organization, Cambridge University Press, vol. 32(02), pages 301-349, March.
    3. Posner, Alan R., 1977. "Italy: dependence and political fragmentation," International Organization, Cambridge University Press, vol. 31(04), pages 809-838, September.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Pica Giovanni, 2010. "Capital Markets Integration and Labor Market Institutions," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-57, March.

    More about this item


    political economy; economic integration; unemployment;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erp:euirsc:p0079. 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: (Valerio PAPPALARDO). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.