The Rise and Persistence of Rigidities

CEPR Discussion Paper Series #1571

Posted: 30 Apr 1997

See all articles by Gilles Saint-Paul

Gilles Saint-Paul

University of Toulouse I - GREMAQ-IDEI; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: February 1997

Abstract

In this paper we argue that employment protection legislation is more likely to arise when the rents earned by the employed over their alternative wage is greater. The model explains why economies with greater real wage rigidity also have greater employment protection. The model also predicts that lower turnover increases the political support for employment protection and that this political support is greater when employment protection is more harmful for employment. Also, rigidities are persistent as they create a constituency of low-productivity sectors whose workers would oppose the removal of firing costs, even though existing rents would not generate support for introducing them. We argue that tight labor markets due to post-war reconstruction needs in Europe made it easier for insiders to create such rents, which in turn led them to support employment protection legislation. In the late 1970s, rents started to fall, but reforms proved difficult because of ratchet effects.

JEL Classification: E6, E24, J3, J6

Suggested Citation

Saint-Paul, Gilles, The Rise and Persistence of Rigidities (February 1997). CEPR Discussion Paper Series #1571. Available at SSRN: https://ssrn.com/abstract=3923

Gilles Saint-Paul (Contact Author)

University of Toulouse I - GREMAQ-IDEI ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
+33 5 6112 8544 (Phone)
+33 5 6122 5563 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Abstract Views
577
PlumX Metrics