Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

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

Jonas Agell ()
Additional contact information
Jonas Agell: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

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

JEL-codes: J50; N30

31 pages, November 25, 2001

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