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Department of Economics, Stockholm University Research Papers in Economics, Department of Economics, Stockholm University

No 2001:12:
On the Determinants of Labour Market Institutions: Rent Seeking vs. Social Insurance

Jonas Agell ()

Abstract: What determines the structure of labour market institutions? I argue that

common explanations based on rent seeking are incomplete. Unions, job

protection, and egalitarian pay structures may have as much to do with social

insurance of otherwise uninsurable risks as with rent seeking. In support of

this more benign complementary hypothesis the paper presents a range of

historical, theoretical, and cross-country evidence. The social

insurance perspective changes substantially the positive analysis of the

future of European labour market institutions. It is not clear that

globalisation and the “new economy” will force countries to make their labour

markets more flexible. These phenomena will probably increase the efficiency

costs of existing institutions, but they may also make voters more willing to

pay a high premium to preserve institutions that provide insurance.

Keywords: Labour market institutions; comparative historical evidence; Sweden; Massachusetts; rent seeking; social insurance; union models; cross-country regressions; openness; linguistic fractionalisation; (follow links to similar papers)

JEL-Codes: J50; N30; (follow links to similar papers)

31 pages, November 25, 2001

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