In this paper, we present a matching model with adverse selection that explains why flows into and out of unemployment are much lower in Europe compared to North America, while employment-to-employment flows are similar in the two continents. In the model, firms use discretion in terms of whom...

In this paper we argue that many of the rigidities that characterize European labour markets can be understood as the outcome of political influence by incumbent employees. We then empirically investigate the determinants of labour market institutions and show that the results are consistent...

Two features distinguish European and US labour markets. First, most European countries have a considerably more generous unemployment insurance system. Second, the duration of unemployment and employment spells are substantially higher in Europe – employment turnover is lower. We show that...

In this paper, we incorporate a positive theory of unemployment insurance into a dynamic overlapping generations model with search-matching frictions and on-the-job learning-by-doing. The model shows that societies populated by identical rational agents, but differing in the initial distribution...

Evidence suggests that unemployed individuals can sometimes affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex-ante. The problem of...

We study a number of mechanisms through which an economy can be stuck at a high unemployment equilibrium because a poor labour market is associated with support for poor policy. These mechanisms are consistent with the relative scarcity of measures that have been undertaken to cure unemployment....

In this paper we study the political issues associated with reform in the European labour market. We first discuss the role played by labour market rigidities in European society, and argue that reform is a difficult task because many regulations and rigidities benefit the majority of the...

We develop a general equilibrium analysis of the impact of active labour market policy on unemployment, wages and the welfare of the employed. This framework is used to assess the political support in favour of such policies and to relate it to the working of such policies and other parameters...

This paper starts from the observation that despite their very high levels of unemployment, major European countries have devoted few resources to reducing it. This suggests that there is little political concern about high unemployment. I develop a model where the government tries to increase...

Firing-cost-free temporary contracts were introduced in many European countries during the eigthies in order to fight high unemployment rates. Their rationale was to increase job creation in a context of high firing costs that were politically hard to decrease. Temporary contracts have become a...