On the Determinants of Labour Market Institutions: Rent Seeking vs. Social Insurance

What determines the structure of labour market institutions? I argue that <p> common explanations based on rent seeking are incomplete. Unions, job <p> protection, and egalitarian pay structures may have as much to do with social <p> insurance of otherwise uninsurable risks as with rent seeking. In support of <p> this more benign complementary hypothesis the paper presents a range of <p> historical, theoretical, and cross-country evidence. The social <p> insurance perspective changes substantially the positive analysis of the <p> future of European labour market institutions. It is not clear that <p> globalisation and the “new economy” will force countries to make their labour <p> markets more flexible. These phenomena will probably increase the efficiency <p> costs of existing institutions, but they may also make voters more willing to <p> pay a high premium to preserve institutions that provide insurance.