On the Benefits From Rigid Labour Markets: Norms, Market Failures, and Social Insurance

Abstract

The common view that far-reaching labour market deregulation is the only remedy for high European unemployment is too simplistic. First, the evidence suggests that deeply rooted social customs are an important cause of wage rigidity, going beyond the legal constraints emphasised in the political debate. Second, in a second-best setting, a compressed wage structure may generate an ef®ciency gain. Finally, based on simple plots of the relation between labour market institutions and openness in OECD countries, I conclude that the globalisation of economic activity may lead to increased demand for various labour market rigidities.

Does labour regulation affect technical and allocative efficiency? Evidence from the banking industry

“…Our results are consistent with Agell (1999), who argues that significant employment security together with a compressed wage structure stimulates investment in education by workers, with positive effects on their productivity by providing workers with insurance against wage risk. Lower wage risk could also have a positive effect on 'relationship lending' in banking, thus positively affecting bank efficiency through improved personal relationships between customers and bank employees.…”

Non-union worker representation, foreign owners, and the performance of establishments

“…Agell (1999) has argued that employee representation is particularly important in order to insure workers against the high risks associated with international trade. A related reasoning might hold true for foreign ownership.…”

Eingliederungszuschüsse und Entlohnung: empirische Evidenz auf Basis von Individualdaten

“…Unions try to standardize and compress wages between as well as within firms, in particular by attaching wages to job-grades (Freeman and Medoff 1984;Agell 1999Agell , 2002. Importantly, German firms applying collective contracts usually do not differentiate between workers with and without union membership (although they are not obliged to pay union wages to non-union members).…”