What determines the structure of labour market institutions? This paper argues that common explanations based on rent sharing 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 sharing and...

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...