DP1438 Understanding Labour Market Institutions: A Political Economy Perspective

Author(s): Gilles Saint-Paul
Publication Date: October 1996
Keyword(s): Employment Protection, Labour Market Institutions, Minimum Wages, Political Economy, Unemployment, Unemployment Benefits
JEL(s): E24, H53, J6
Programme Areas: International Macroeconomics, Human Resources
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1438

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.