Labour Supply and Incentives to Work in Europe
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Labour Supply and Incentives to Work in Europe

Edited by Ramón Gómez-Salvador, Ana Lamo, Barbara Petrongolo, Melanie Ward and Etienne Wasmer

Labour Supply and Incentives to Work in Europe highlights recent developments in the labour supply in Europe and gives a detailed assessment of their link with economic policies and labour market institutions. Despite major changes in European labour supply during the past few decades, the existing literature still lacks a comprehensive study of the relationship between labour supply and labour market institutions from a macro perspective.
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DOES EU ENLARGEMENT IMPLY A 'RACE TO THE BOTTOM' IN EU LABOUR MARKETS?

Dennis J. Snower

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DOES EU ENLARGEMENT IMPLY A ‘RACE TO THE BOTTOM’ IN EU LABOUR MARKETS? Dennis J. Snower The ‘race to the bottom’ thesis is that EU enlargement will make labour markets more flexible by reducing wages. The underlying reasoning is well known: the more generous the welfare benefits provided by a country, the greater will be the inflow of immigrants to that country. The immigrants, furthermore, will self-select, that is, the people with the largest incentives to immigrate will be those who are most likely to be or to become dependent on welfare benefits. To finance these benefits, the government will need to raise taxes, thereby reducing the incentives to work and invest. As a result, there will be an outflow of capital from the country. In these ways, countries will be punished for providing generous welfare benefits and thus will have an incentive to reduce them. Consequently, real wages will fall and labour markets will become more flexible. A necessary condition for this to happen is that labour, capital, or goods and services are sufficiently mobile across countries. In addition, such mobility must not generate a significant increase in rent-seeking activities by incumbent firms and employees with vested interests in the status quo, thereby preventing the ‘race to the bottom’ through the political process. In practice, however, there are good reasons to believe that these conditions are highly unlikely to be met. Let us begin by considering labour mobility. Although income di...

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