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Union wage setting in a dual labour market: the role of centralisation

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  • Marcus Dittrich

Abstract

This paper analyses the centralisation of union wage bargaining when the workers' outside option is determined endogenously. A dual labour market model is developed where the wage rate in the first sector is either the result of decentralised bargaining at the firm level or of centralised bargaining at the sector level. Workers' outside option is employment in a competitive sector. Labour market outcome depends on whether the union takes into account the connection between wages in both sectors. Wage setting centralisation increases social welfare if union's bargaining power at the firm level is relatively high and/or the union at the sector level represents a relatively large number of workers.

Suggested Citation

  • Marcus Dittrich, 2008. "Union wage setting in a dual labour market: the role of centralisation," International Economic Journal, Taylor & Francis Journals, vol. 22(4), pages 461-470.
    • Handle: RePEc:taf:intecj:v:22:y:2008:i:4:p:461-470
    DOI: 10.1080/10168730802497536
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    Cited by:

    1. Dittrich, Marcus & Schirwitz, Beate, 2011. "Union membership and employment dynamics: A note," Economics Letters, Elsevier, vol. 110(1), pages 38-40, January.
    2. Schirwitz, Beate & Dittrich, Marcus, 2006. "A Dynamic Model of Union Behaviour. The Role of an Endogenous Outside Option and Bargaining Centralisation," Dresden Discussion Paper Series in Economics 07/06, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    3. Beate Schirwitz, 2013. "Business Fluctuations, Job Flows and Trade Unions - Dynamics in the Economy," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 47.

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