Wage Compression, Employment Restrictions and Unemployment

Governments often intervene in labor markets with the aim of reducing inequality and promoting employment. Such intervention often results in wage compression and restrictions on how firms use their workers. This paper investigates the impact of such interventions on the labor market conditions faced by low-skill workers in Mauritius. It finds that even relatively minor intervention can dramatically increase the fragility of jobs, the length of unemployment spells, as well as the extent of unemployment and labor market churning. With institutions of the type studied here common across many different types of countries, these results have relatively general implications.Unemployment;Labor markets;Wage restraint;labor market, jobs, job creation, employment, job destruction, employment growth, labor market institutions, unemployed, job reallocation, new jobs, unemployment spells, unemployment rate, job flows, labor market restrictions, unemployment problem, average unemployment, labor demand, unemployment duration, labor market tightness, unemployment rates, average wages, job destruction rate, labor costs, bargaining power, labor market reform, average wage, labor market model, reallocation of jobs, new job, labor market outcomes, employment opportunities, unemployment spell, labor market conditions, job search, unemployed worker, unemployed workers, job flow, incidence of unemployment, labor market transition, labor market intervention, equilibrium unemployment, high unemployment, creation of jobs, job destruction rates, search unemployment, high employment, labor market regulations, job security provisions, employment prospects, average employment, job offer, number of employees, labor economics, labour, job opening, net employment, need for labor market reform, job openings, growing unemployment, labor reallocation, job security, labour market, employment growth rates, labor force, old jobs, employment outlook, conditions of employment, job turnover