Persistent real exchange rates |
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Authors: | Hervé Boulhol |
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Institution: | University Paris I Panthéon-Sorbonne, 13 rue de Chabrol, 75010 Paris, France |
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Abstract: | Over the past decades, product market deregulation has typically preceded labor market reforms in OECD countries. This paper incorporates labor market rigidities in a model of footloose capital in order to study how globalization might affect the trade-offs generated by labor market regulation and put pressure on labor market institutions. In this two-sector model, globalization ultimately reduces labor market rigidities through either one of two channels: capital mobility triggers a re-allocation of resources, which trade integration amplifies, away from the high-rent / highly-unionized sector; the threat of costly relocations encourages labor market deregulation. The latter channel is more efficient because it avoids sub-optimal sectoral specialization. |
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Keywords: | F12 F16 F20 J41 J42 |
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