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Should civil servants be restricted in wage bargaining? A mixed-duopoly approach

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Author Info
Ishida, Junichiro
Matsushima, Noriaki

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Abstract

Should civil servants (employees in the public sector) be allowed to bargain collectively? To answer this question, we construct a model of unionized mixed duopoly and examine the regulatory framework of public institutions, especially focusing on a wage regulation imposed on the public firm. The wage regulation turns out to yield critical welfare implications as it gives rise to two opposing strategic effects: the wage regulation intensifies downstream-market competition while it loosens upstream-market competition. The overall welfare effect is ambiguous, depending crucially on the degree of product differentiation between the firms. We also show that, in contrast to the popular belief, granting the right to bargain collectively to civil servants would not necessarily help them because they tend to demand excessively high wages when they are allowed to bargain collectively. Finally, we briefly discuss a new perspective on the role of profit motives in public institutions when the wages are determined endogenously.

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File URL: http://www.sciencedirect.com/science/article/B6V76-4V2NK8R-1/2/c245afb1fd4d203264eb885eb26155b5
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Publisher Info
Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 3-4 (April)
Pages: 634-646
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Handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:634-646

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Web page: http://www.elsevier.com/locate/inca/505578

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Related research
Keywords: Mixed oligopoly Wage bargaining Wage regulation Labor unions Strategic complements;

Cited by:
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  1. Kangsik, Choi, 2008. "Cournot-Bertrand competition in a unionized mixed duopoly," MPRA Paper 12787, University Library of Munich, Germany, revised 26 Dec 2008. [Downloadable!]
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This page was last updated on 2009-12-3.


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