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Journal Article

Civic Virtue and Labor Market Institutions

Yann Algan and Pierre Cahuc
American Economic Journal: Macroeconomics
Vol. 1, No. 1 (January 2009), pp. 111-145
Stable URL: http://www.jstor.org/stable/25760262
Page Count: 35
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Civic Virtue and Labor Market Institutions
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Abstract

We argue civic virtue plays a key role in explaining the design of public insurance against unemployment risks by solving moral hazard issues which hinder the efficiency of unemployment insurance. We show, in a simple model, that economies with stronger civic virtues are more prone to provide insurance through unemployment benefits rather than through job protection. We provide cross-country empirical evidence of a strong correlation between civic attitudes and the design of unemployment benefits and employment protection in OECD countries over the period 1980 to 2003. We then use an epidemiological approach to estimate the existence of a potential causal relationship from inherited civic virtue to labor market insurance institutions.

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