Dual Labor Markets: A Macroeconomic Perspective

Abstract

Introduction: The U.S. debate on dual labour market the European debate over labour market flexibility are rigidities that bad? the debate on labour market flows and 'renovating economies' unemployment and skills required technical background. Some technical background: an introduction to dynamic programming the matching function. The dynamic efficiency wage model: presentation of the model the cost of labour the dynamics of labour demand aspects of commitment introducing dualism. The dual model: internal dualism and demand volatility introducing internal dualism in the dynamic efficiency wage model persistent shocks. Efficiency wages and segmented labour markets - the empirical debate: competitive versus noncompetitive models of the labour market the debate on interindustry wage differentials direct evidence evidence on dualism. Dualism, labour market reform, and macroeconomic performance: the model the rigid world (regime A) flexible contracts available (regime B) the transition between the two regimes introducing business cycles empirical evidence on the effect of two-tier systems on labour demand. Appendix: derivation of theoretical results. Impact of dualism on wage formation: flexible contracts and wage formation a model of wage formation flexible contracts and competitive wage setting the underemployment case with full job protection the underemployment case with incomplete job protection the full-employment case impact of flexible contracts on the markup empirical evidence on the effect of two-tier labour markets on wage formation. Dualism and labour market flows: facts about flows job creation and job destruction in the dual model from job flows to worker flows dynamic simulations do dual labour markets lead to a dual society? Skilled versus unskilled workers: the basic model impact of the productivity differential and the skill composition of the population the flexible regime and the role of irreversibility. Human capital accumulation: the simple learning-by-doing model labour market rigidities and the return to education perspectives on labour market institutions and economic growth political and distributional issues. The political economy of two-tier systems: a simple model of the labour market the two-tier systems as a political implementation device the consensus role of two-tier systems two-tier contracts as a support-building device and the associated time-consistency problem the political analysis on the political aspects of labour market.

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