Chapter

Wage Rigidity and Social Cohesion

Gilles Saint‐Paul

in The Political Economy of Labour Market Institutions

Published in print September 2000 | ISBN: 9780198293323
Published online November 2003 | e-ISBN: 9780191596841 | DOI: http://dx.doi.org/10.1093/0198293321.003.0004
 Wage Rigidity and Social Cohesion

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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.

Keywords: cohesion; extreme coalitions; inequality; median voter; rank effects; redistribution; taxation

Chapter.  10383 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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