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Labour market reforms have been undertaken to eliminate labour market rigidities in European countries since 1970s. The important features of the reforms are the reduction in adjustment costs and the introduction of fixed-term contracts (FTC). Some empirical studies point out that employment...
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causes deficient aggregate demand and thereby unemployment in the presence of nominal wage stickiness attributable to union … wage setting. In this long-run stagnation, generous unemployment benefits reduce unemployment. Moreover, paradoxically …, unemployment declines if labor unions give more weight to nominal wage gains compared with employment increases …
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