I review theoretical arguments suggesting that certain labour market institutions can be justified for economic efficiency reasons. In models with intrinsic market failures, rigiditiesʺ like employment protection legislation and institutional wage compression may push the economy closer to the...

High unemployment in many European OECD countries has been attributed to factors ranging from rigid wages and low job mobility to an interaction of high taxes and generous social benefits that may discourage labor force participation and encourage the growth of an underground economy. This...