Politics and the Labor Market: The Role of Frictions

We study how political intermediation in the labor market interacts with search frictions. Politicians create and control (to a certain extent) business opportunities for firms, hence the creation of new vacancies. But to compete for these vacancies workers have to give their support to politi-cians. This leads to a fragmentation of the labor market, where politicians act as mediators between demand and supply. We show that in presence of information asymmetries (when non-affiliated workers are not able to distinguish non-affiliated firms, for which they are eligible, from affiliated ones, for which they are not eligible) the impact of political intermedia-tion is U-shaped, and can more than double the resulting unemployment rate.