We show that in democracies insufficient recognition of general equilibrium effects can lead to a crisis. We consider a two-sector economy in which a majoritarian political process determines governmental regulation in one sector: a minimum nominal wage. If voters recognize general equilibrium...

We study the emplyment and distributional effects of regulating (reducing) working time in a general equilibrium model with search-matching frictions. Job creation entails some fixed costs, but existing jobs are subject to diminishing returns. We characterize the equilibrium in the de-regulated...

This Paper analyses the evolution of quantitative measures of employee rents in Europe during the nineties, using the European Household Panel Survey. I look at two classes of measures: wage differentials between workers along industry and firm size dimensions; and estimated welfare differences...

This Paper studies the impact of wage growth on the evolution of employment in an intertemporal general-equilibrium model with endogenous productivity growth. For real wage growth above laissez-faire levels, we obtain steady-state equilibria in which productivity grows at the same rate as wages,...

We study a labour market in which firms can observe workers’ output but not their effort, and in which a worker’s productivity in a given firm depends on a worker-firm specific component, unobservable for the firm. Firms offer wage contracts that optimally trade off effort and wage costs. As...

A labour-matching economy with ex post heterogeneous firms is presented. When bargaining over the wage, firms and workers do not know the level of product demand. Once demand is realized, hours of work are chosen. We show that the existence of a legal workweek may enhance efficiency with respect...

Labour's share of GDP in most OECD countries has declined over the last two decades. Some authors have suggested that these changes are linked to deregulation of product and labour markets. To examine this we focus on a large quasi-experiment in the OECD: the privatization of many network...

This paper shows that in a small open economy model with downward nominal wage rigidity pegging the nominal exchange rate creates a negative pecuniary externality. This peg-induced externality is shown to cause unemployment, overborrowing, and depressed levels of consumption. The paper...

Since the onset of the great recession in peripheral Europe, nominal hourly wages have not fallen much from the high levels they had reached during the boom years in spite of widespread increases in unemployment. This observation evokes a well-known narrative in which nominal downward wage...

The Paper examines real and nominal wage rigidities. We estimate a switching regime model, in which the observed distribution of individual wage changes, computed from West German register data for 1976-97, is generated by simultaneous processes of real, nominal or no wage rigidity, and...