Declining bargaining power of workers and the rise of early retirement in Europe

E-print/Working paper (2013)

We offer an alternative explanation for the decline in labor force participation of senior workers. Typically, tax and transfer explanations have been proposed. On the contrary, a model with imperfectly ... [more ▼]

We offer an alternative explanation for the decline in labor force participation of senior workers. Typically, tax and transfer explanations have been proposed. On the contrary, a model with imperfectly competitive labor market allows to consider as well the effects of a drop in bargaining power, which would not be possible in a purely neoclassical framework. We find that a decline in the bargaining power of workers, which has taken place in the last four decades, has largely contributed to the rise in inactivity in Europe. However, we need a combination of these two explanations, along with population aging and a fall in the matching efficiency, in order to correctly reproduce the joint evolutions of other labor market variables such as the employment and unemployment rates. [less ▲]

Globalisation & the Labour Market: the Winners and the Losers

Scientific Conference (2012, June)

Demographics, Capital Flows and European Unemployment

Presentation (2011, May)

Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance

in Journal of Policy Modeling (2010), 32(4), 531-543

We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with ... [more ▼]

We use a calibrated general equilibrium model with heterogeneous labor and search to evaluate the quantitative effects of various labor tax cut scenarios. The focus is on skill heterogeneity combined with downward wage rigidities at the low end of the skill ladder. Workers can take jobs for which they are overeducated. We compare targeted and non-targeted tax cuts, both with or without over-education effects. Introducing over-education changes substantially the employment, productivity and welfare effects of a tax cut, although tax cuts targeted on the least skilled workers always have larger effects. [less ▲]

Risk premiums and macroeconomic dynamics in a heterogeneous agent model

in Journal of Economic Dynamics and Control (2010), 34

We analyze financial risk premiums and real economic dynamics in a DSGE model with three types of agents - shareholders, bondholders and workers - that differ in participation in the capital market and in ... [more ▼]

We analyze financial risk premiums and real economic dynamics in a DSGE model with three types of agents - shareholders, bondholders and workers - that differ in participation in the capital market and in attitude towards risk and intertemporal substitution. Aggregate productivity and distribution risks are transferred across these agents via the bond market and via an efficient labor contract. The result is a combination of volatile returns to capital and a highly cyclical consumption process for the shareholders, which are two important ingredients for generating high and counter-cyclical risk premiums. These risk premiums are consistent with a strong propagation mechanism through an elastic supply of labor, rigid real wages and a counter-cyclical labor share. Based on the empirical estimates for the two sources of real macroeconomic risk, the model generates significant and plausible time variation in both bond and equity risk premiums. Interestingly, the single largest jump in both the risk premium and the price of risk is observed during the current recession. [less ▲]

Sequential bargaining in a New Keynesian model with frictional unemployment and staggered wage negotiation

in Annales d'Economie et de Statistique (2009), 95-96

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers’ bargaining power in the hours negotiation affects both ... [more ▼]

We consider a model with frictional unemployment and staggered wage bargaining where hours worked are negotiated every period. The workers’ bargaining power in the hours negotiation affects both unemployment volatility and inflation persistence. The closer to zero this parameter, (i) the more firms adjust on the intensive margin, reducing employment volatility, (ii) the lower the effective workers’ bargaining power for wages and (iii) the more important the hourly wage in the marginal cost determination. This set-up produces realistic labor market statistics together with inflation persistence. Distinguishing the probability to bargain the wage of the existing and the new jobs, we show that the intensive margin helps reduce the new entrants wage rigidity required to match observed unemployment volatility. [less ▲]

Low-skilled unemployment, capital-skill complementarity and embodied technical progress

in Recherches Economiques de Louvain (2007), 73(3), 330-352

Models developed by recent economic literature do not manage to account simultaneously for the three main stylized facts observed in many EU countries since the mid-seventies: (i) the increase in the ... [more ▼]

Models developed by recent economic literature do not manage to account simultaneously for the three main stylized facts observed in many EU countries since the mid-seventies: (i) the increase in the overall unemployment rate; (ii) the difference between high-skilled and low-skilled unemployment; (iii) the stability of relative wages. This paper focuses on these issues. We construct an intertemporal general equilibrium model seeking to reproduce these facts. We consider two types of jobs and two types of workers. We allow for job competition between high- and low-skilled workers on the low-skilled segment of the labor market and for on-the-job search. Matching processes are represented by matching functions à la Pissarides. Low-skilled search intensities are endogenous and high-skilled workers decide on the amount of effort they devote to search in each labor market segment. Biased technological change is introduced via embodied technical progress and capital-skill complementarity. The model is calibrated and simulated to evaluate the impact of various types of shocks. The model reproduces quite well the unemployment rate changes and the relative wage stability observed over the past two decades [less ▲]

Labour Market Adjustments and Macroeconomic Performance

in Mitchell, W., Muysken, J. (Ed.) Growth and Cohesion in the European Union: the Impact of Economic Policy (2006)

Unemployment remains the main concern of most EU countries. Substantial differences are observed not only across countries but also across regions of the same country. Important differences also exist ... [more ▼]

Unemployment remains the main concern of most EU countries. Substantial differences are observed not only across countries but also across regions of the same country. Important differences also exist across skill groups. We focus here on the skill dimension and report on some results obtained for the Belgian economy, keeping in mind though that the analysis could be extended to other countries characterised by the same problems. We argue that low-skilled unemployment can be explained in terms of biased technological change and relative wage rigidities (related to labour market institutions). We explore in that context the effects of targeted labour tax cuts. We find that it is most important to take into account the effect of such tax cuts on both the job creation and the job destruction rates. The failure to do so may explain the gap between macro- and micro-econometric evaluations of such policies. We also briefly discuss the impact on welfare and examine the consequences of job competition (ladder effect). [less ▲]

Job turnover, unemployment and labor market institutions

in Labour Economics (2004), 11(4), 451-468

This paper studies the role of labor market institutions on unemployment and on the cyclical properties of job flows. We construct an intertemporal general equilib- rium model with search unemployment and ... [more ▼]

This paper studies the role of labor market institutions on unemployment and on the cyclical properties of job flows. We construct an intertemporal general equilib- rium model with search unemployment and endogenous job turnover, and examine the consequences of introducing an unemployment benefit, a firing cost and a downward wage rigidity. The model is able to reproduce the main cyclical properties of a typical European economy. It also suggests that downward wage rigidities, rather than unem- ployment benefit or firing cost, may well play a dominant role in explaining both the high unemployment rate and the cyclical properties of such an economy. [less ▲]

Effets des préretraites sur l'emploi

in Revue Française d'Economie (2003), 18(1), 133-155

The paper analyzes the mechanisms by which policies aiming at downsizing the labour force (like early retirement policies) may in fact lead to lower employment levels, even though the equilibrium ... [more ▼]

The paper analyzes the mechanisms by which policies aiming at downsizing the labour force (like early retirement policies) may in fact lead to lower employment levels, even though the equilibrium unemployment rate is decreased. Numerical examples suggest that job losses may be potentially important, even in the case where early retirements are concentrated among groups with high unemployment levels (low-skilled workers). The model takes into account the effects coming from imperfect competition and wage negotiations, as well as those coming from frictions and matching difficulties in an economy with continuous job creations and destructions. Reducing the labour force by promoting early retirement induces in the long run an increase in labour costs, either directly through the effect of unemployment on wages, or indirectly via the effect of unemployment on hiring difficulties. [less ▲]