The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Labour Market Institutions

  • Richard B. Freeman
Reference work entry


Labour market institutions – unions, collective bargaining, government regulations – that help determine wages and working conditions differ greatly across countries. Advanced European countries rely extensively on institutions while the United States relies more on market forces. Labour institutions reduce the dispersion of pay and income inequality but have problematic effects on other aggregate economic outcomes, such as unemployment. The weak or inconclusive link between institutions and outcomes beyond wage dispersion could reflect different institutional effects under different economic conditions; efficient bargaining that balances the adverse and positive effects of institutions on those outcomes, or weaknesses in data and modelling.


Coase Theorem Collective bargaining Employment at will Employment protection Gini coefficient Health insurance Labour market institutions Layoffs Minimum wages Rent seeking Reservation wages Trade union density Trade unions Unemployment Unemployment insurance Wage differentials Wage dispersion Wage drift 

JEL Classification

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Richard B. Freeman
    • 1
  1. 1.