Abstract:
Classic economic theory applied to the labor market assumes that markets are
perfectly informed and able to allocate workers in open vacancies in equilibrium. These
workers are paid a salary equal to their marginal product of labor, since labor supply
and demand are both satisfied. In the real world, however, this condition might not
hold, as there exist many market frictions triggered by imperfect information and
institutional factors, such as employment protection, unemployment benefits, collective
bargaining, minimum wages and taxation. The persistently high unemployment rates
plaguing the Western World, and Europe in particular in the aftermath of the Great
Recession suggest that wage rigidity combined with falling productivity may be an
important channel causing increasing unemployment. Belgium is no exception, with
7.6% national unemployment rate in 2012 averaging over the 17.4% unemployment
rate of Brussels, the 4.5% rate of Flanders and the 10.0% rate of Wallonia (source:
Eurostat)...