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Strategic Innovation with Complete and Incomplete Labour Market Contracts

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  • Alistair Ulph
  • David Ulph

Abstract

In a model of strategic R&D competition between two firms that negotiate with independent unions we show that: (i) incomplete labour market contracts may Pareto‐dominate complete labour market contracts (ii) even when complete contracts Pareto‐dominate incomplete contracts, economies can get stuck in the incomplete contract equilibrium. These conclusions provide additional strategic reasons why complete labour market contracts may not be used—even if they were feasible. We propose two testable predictions to discriminate between complete and incomplete contracts: (i) the variance of wages is lower with complete contracts; (ii) the variance of employment is higher under complete contracts.

Suggested Citation

  • Alistair Ulph & David Ulph, 2001. "Strategic Innovation with Complete and Incomplete Labour Market Contracts," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 265-282, June.
    • Handle: RePEc:bla:scandj:v:103:y:2001:i:2:p:265-282
    DOI: 10.1111/1467-9442.00244
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    Cited by:

    1. Braun, Sebastian, 2011. "Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model," Labour Economics, Elsevier, vol. 18(1), pages 120-129, January.
    2. Basak, Debasmita & Mukherjee, Arijit, 2018. "Labour unionisation structure and product innovation," International Review of Economics & Finance, Elsevier, vol. 55(C), pages 98-110.
    3. John T. Addison & Paulino Teixeira & Katalin Evers & Lutz Bellmann, 2017. "Collective Bargaining and Innovation in Germany: A Case of Cooperative Industrial Relations?," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(1), pages 73-121, January.
    4. Mukherjee, Arijit & Pennings, Enrico, 2011. "Unionization structure, licensing and innovation," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 232-241, March.
    5. Asproudis, Elias & Filippiadis, Eleftherios & Tian, Mo, 2022. "Timing of environmental technological choice and trade unions' climate solidarity," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    6. Bryson, Alex & Dale-Olsen, Harald, 2020. "Unions, Tripartite Competition and Innovation," IZA Discussion Papers 13015, Institute of Labor Economics (IZA).
    7. Ben Ferrett & Vasileios Zikos, 2013. "Wage-Setting Institutions and R&D Collaboration Networks," Australian Economic Papers, Wiley Blackwell, vol. 52(2), pages 61-78, June.
    8. Asproudis, Elias & Filippiadis, Eleftherios & Tian, Mo, 2021. "Climate solidarity, green trade unions and timing of technological choice," MPRA Paper 106329, University Library of Munich, Germany.
    9. May, Frank Christian & Münster, Johannes, 2013. "Centralized Bargaining in Press Wholesale," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79984, Verein für Socialpolitik / German Economic Association.
    10. Carlos Lamarche, 2013. "Industry-wide work rules and productivity: evidence from Argentine union contract data," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-25, December.
    11. Debasmita Basak & Andreas Hoefele & Arijit Mukherjee, 2014. "Union Bargaining Power and Product Innovation: Relevance of the Preference Function," CESifo Working Paper Series 5007, CESifo.
    12. Debasmita Basask, 2012. "Price competition and the effects of labour union on process innovation," Discussion Papers 12/05, University of Nottingham, School of Economics.
    13. Neil Rickman & Vasileios Zikos, 2016. "Endogenous R&D networks when labour unions have preferences over wages and employment," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(1), pages 1-13, January.
    14. Jacob Seifert, 2015. "Welfare effects of compulsory licensing," Journal of Regulatory Economics, Springer, vol. 48(3), pages 317-350, December.
    15. Vasileios Zikos, 2007. "The Temporal Dimension of Wage Contracts in Oligopoly with Spillovers," Discussion Paper Series 2007_04, Department of Economics, Loughborough University, revised Feb 2007.
    16. Addison, John T. & Teixeira, Paulino & Evers, Katalin & Bellmann, Lutz, 2013. "Collective Bargaining and Innovation in Germany: Cooperative Industrial Relations?," IZA Discussion Papers 7871, Institute of Labor Economics (IZA).
    17. Braun, Sebastian, 2009. "Unionisation structures and heterogeneous firms," Kiel Working Papers 1566, Kiel Institute for the World Economy (IfW Kiel).
    18. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    19. Debasmita Basak & Arijit Mukherjee, 2011. "Unionisation structure and product innovation," Discussion Papers 11/12, University of Nottingham, School of Economics.
    20. Lingens, Jorg, 2007. "Unions, wage setting, and economic growth," Economic Modelling, Elsevier, vol. 24(1), pages 167-188, January.

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