Must we choose? European unemployment, American inequality, and the impact of education and labor market institutions

Alicia Adsera, Carles Boix

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

In the last 15 years, two equilibria have arisen in the advanced world. On the one hand, wage dispersion has widened in those countries where unemployment has remained low (with cyclical variations). On the other hand, wherever income inequality has remained unchanged, unemployment has shot upwards. To account for these distinct patterns, we develop a political-economic model showing that, controlling for the skills of the population, the effects of technological and trade shocks (that have affected OECD nations) that are contingent on the institutional rules in place. Economies with generous unemployment allowances adjust through subsidized unemployment. By contrast, low levels of social protection lead to less unemployment but wider wage dispersion. The level of qualifications of the labor force determines the extent of the adjustment for a given institutional arrangement. We derive, in turn, the institutional structure of each country from the political conditions in place at the time of the shock. The empirical part successfully tests the model for the sample of European regions and US states.

Original languageEnglish (US)
Pages (from-to)611-638
Number of pages28
JournalEuropean Journal of Political Economy
Volume16
Issue number4
DOIs
StatePublished - Nov 2000
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Political Science and International Relations

Keywords

  • Corporatism
  • E24
  • Education
  • Income distribution
  • Inequality
  • Institutions
  • J3
  • J65
  • Unemployment

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