The efficiency of flexible labor markets requires mobile workers. Otherwise, firms can take advantage of the immobility of workers and extract monopsony rents. In cultures with strong family ties, moving away from home has utility costs. Thus, individuals with strong family ties rationally choose regulated labor markets to reduce the mobility of labor and the monopsony power of firms, even though they produce lower employment. Empirically, we do find that individuals who inherit stronger family ties are less mobile, have lower wages, are less often employed and
support more stringent labor market regulations. There are also positive cross- country correlations between the strength of family ties and labor market rigidities. Finally, we find positive correlations between labor market rigidities at the beginning of the twenty first century and family values prevailing before World War II, whichsuggest that labor market regulations have deep cultural roots. |
