Working Paper No. 520

Cumulative Effects of Labor Market Distortions

Published: January 19, 1999. Revised October 5, 2000.Pages: 23Keywords: Vertical Linkages; Multiple Equilibria; Labor UnionsJEL-codes: F12, O11, J50

Cumulative Effects of Labor Market Distortions Pehr-Johan Norbäck


This paper considers a small open economy whit an input-output industrial structure that creates vertical linkages multiple equilibria. An imperfect labor market is introduced by assuming unionized labor. It is shown that a deregulation of the labor market may trigger a large, discontinuous expansion of industrial output, as reduced wage-costs start a circular, cumulative process in which expansions of the up- and downstream industries promote each other. Centralization of collective bargaining may, however, also be conductive to industrialization.

Pehr-Johan Norbäck

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Martin Ljunge, IFN, is the author of a chapter, "Trust promotes health: addressing reverse causality by studying children of immigrants", in a new book edited by Sherman Folland and Eric Nauenberg. The cutting edge of research is presented, covering the ever-expanding social capital field.

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