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The Political Economy of Labour Market Institutions$
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Gilles Saint-Paul

Print publication date: 2000

Print ISBN-13: 9780198293323

Published to Oxford Scholarship Online: November 2003

DOI: 10.1093/0198293321.001.0001

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Wage Rigidity and Social Cohesion

Wage Rigidity and Social Cohesion

(p.71) 3 Wage Rigidity and Social Cohesion
The Political Economy of Labour Market Institutions

Gilles Saint‐Paul

Oxford University Press

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

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