Wage Rigidity and Social Cohesion

In Gilles Saint-Paul (ed.), The Political Economy of Labour Market Institutions. Oxford University Press UK (2000)
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Abstract

We study the effect of rigidity when there exists a redistributive system. We show that rigidity reduces redistributive pressure by bringing the median income closer to the mean. Consequently, it is supported by a coalition of lower‐middle class and upper‐middle class workers, while the extremes lose. Political support for rigidity is stronger at intermediate levels of inequality, while greater elasticity of labour demand reduces the cohesive effects of rigidity.

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