Macroeconomic policy and labour market structure
This thesis comprises three chapters. Each considers a particular manner in which policy choice and labour market structure interact to determine macroeconomic performance. The first chapter argues that employment protection legislation can significantly reduce equihbrium employment. It considers the impact of firing costs on the pricing behaviour of intermediate-good firms facing idiosyncratic productivity shocks. It is shown that, since they might work against existing market distortions, such costs can lead to either more or less efficient labour allocations. Simulations indicate that the magnitude of their effects is potentially much greater than is found in standard, representative-firm models, particularly when they act to reduce employment. The second chapter links the decentralisation of wage-bargaining in industrialised countries over the last twenty years to the more anti-inflationary macroeconomic regimes also in evidence. It presents a monetary policy game in which, prior to the central bank choosing inflation, wages are set by coalitions of unions. Unions are assumed to anticipate central bank behaviour when forming these coalitions. Using both cooperative and non-cooperative theories of coalition stability and formation, it is shown that highly conservative central banks are associated with decentralised patterns of wage-setting. The third chapter considers the effect of spatial unemployment dispersion on inflationary pressure in the aggregate. It reviews the theoretical rationales for any such effect, and argues that some previous studies have been overly restrictive in their assumption of homogeneous disaggregate Phillips curves. A theoretical rationale for disaggregate heterogeneity is provided and aggregate and regional Phillips curves estimated. Statistics on the spatial unemployment distribution are found to explain a significant part of the variation of the GB NAIRU over time.