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The Political Economy of Labor Market Regulation with R&D

  • Palokangas, Tapio K.


    (University of Helsinki)

In this paper, I study the political rationale for labor market regulation. Oligopolists employ raw labor and human capital (i.e. key workers) for production and R&D. There are many jurisdictions, in each of which a self-interested policy maker can regulate/deregulate the local labor market. I show that the observed tendency to labor market deregulation results from labor market policies being set up at the local level. In small jurisdictions, the fall of income due to wage increases is so large that the labor markets are deregulated. With labor market integration, jurisdictions get larger and face less competition from outside. Then, the fall of income due to wage increases is reduced and labor market regulation becomes more attractive to workers' lobbies.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8147.

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Length: 27 pages
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:iza:izadps:dp8147
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  1. Ellen Brock & Sabien Dobbelaere, 2006. "Has International Trade Affected Workers’ Bargaining Power?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 233-266, July.
  2. Saint-Paul, Gilles, 1996. "Employment Protection, International Specialization, and Innovation," CEPR Discussion Papers 1338, C.E.P.R. Discussion Papers.
  3. Robert Vergeer & Alfred Kleinknecht, 2010. "The impact of labor market deregulation on productivity: a panel data analysis of 19 OECD countries (1960-2004)," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 33(2), pages 371-408, January.
  4. Dumont, Michel & Rayp, Glenn & Willemé, Peter, 2012. "The bargaining position of low-skilled and high-skilled workers in a globalising world," Labour Economics, Elsevier, vol. 19(3), pages 312-319.
  5. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  6. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  7. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 925-944, May.
  8. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  9. Niklas Potrafke, 2010. "Labor market deregulation and globalization: empirical evidence from OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(3), pages 545-571, September.
  10. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 672-701, June.
  11. Tapio Palokangas, 2002. "The Political Economy of Collective Bargaining," CESifo Working Paper Series 719, CESifo Group Munich.
  12. Boulhol, Hervé & Dobbelaere, Sabien & Maioli, Sara, 2006. "Imports as Product and Labor Market Discipline," IZA Discussion Papers 2178, Institute for the Study of Labor (IZA).
  13. Tapio Palokangas, 2004. "Union-Firm Bargaining, Productivity Improvement and Endogenous Growth," LABOUR, CEIS, vol. 18(2), pages 191-205, 06.
  14. Filip Abraham & Jozef Konings & Stijn Vanormelingen, 2009. "The effect of globalization on union bargaining and price-cost margins of firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 13-36, April.
  15. Michel Dumont & Glenn Rayp & Peter Willemé, 2006. "Does internationalization affect union bargaining power? An empirical study for five EU countries," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 77-102, January.
  16. Hoon, Hian Teck & Phelps, Edmund S., 1997. "Growth, wealth and the natural rate: Is Europe's jobs crisis a growth crisis?," European Economic Review, Elsevier, vol. 41(3-5), pages 549-557, April.
  17. Johal, Surjinder & Ulph, Alistair, 2002. "Globalization, Lobbying, and International Environmental Governance," Review of International Economics, Wiley Blackwell, vol. 10(3), pages 387-403, August.
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