Working Paper: CEPR ID: DP1438
Authors: Gilles Saint-Paul
Abstract: In this paper we argue that many of the rigidities that characterize European labour markets can be understood as the outcome of political influence by incumbent employees. We then empirically investigate the determinants of labour market institutions and show that the results are consistent with this view. Among other things, we find: that higher exposure of the employed to unemployment facilitates a reduction in the level of employment protection; that unemployment benefits are lower, the more employment reacts to wages; and that a higher level of unemployment and a right-wing government slow down the growth rate of the minimum wage.
Keywords: unemployment; labour market institutions; political economy; unemployment benefits; minimum wages; employment protection; labour market policy; insiders
JEL Codes: E24; H53; J6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher exposure of the employed to unemployment (J68) | Reduction in employment protection (J63) |
| Increased wage responsiveness (J38) | Lower unemployment benefits (J65) |
| Higher unemployment levels and right-wing government influence (F66) | Slower growth rate of minimum wages (J38) |
| Rising unemployment (F66) | Reforms aimed at increasing labor market flexibility (J48) |