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Wage Formation and the Persistence of Unemployment

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  • Gottfries, Nils
  • Horn, Henrik

Abstract

The basic idea is that employed and unemployed workers have diverging interest s and that wage decisions tend to favor the interest of those employe d. This is shown to imply that unemployment, once created, tends to p ersist after wage contracts have been negotiated anew. The reason is that the lower the number of workers employed yesterday, the fewer th e number of jobs required today in order to ensure the previously emp loyed workers a high probability of employment. Unions, acting in th e interest of the employed workers, may therefore raise wages so that unemployment persists. Copyright 1987 by Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 97 (1987)
Issue (Month): 388 (December)
Pages: 877-84

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Handle: RePEc:ecj:econjl:v:97:y:1987:i:388:p:877-84

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