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Trade Unions and the Efficiency of the Natural Rate of Unemployment

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  • Pissarides, Christopher A

Abstract

Decentralized wage setting in search equilibrium models is inefficient because the meeting firm and worker ignore the dependence of job-matching probabilities on the number of firms and worker engaged in search. This paper investigates whether risk-neutral monopolistic unions will have an incentive to internalize this externality. The author finds that the externality will be internalized only if the union's policy is chosen by unemployed persons. If employed persons influence union policy, both the union wage and unemployment will be too high. A tax on the union wage, combined with an employment subsidy to firms, can correct this inefficiency. Copyright 1986 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 4 (1986)
Issue (Month): 4 (October)
Pages: 582-95

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Handle: RePEc:ucp:jlabec:v:4:y:1986:i:4:p:582-95

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Web page: http://www.journals.uchicago.edu/JOLE/

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Cited by:
  1. Priya Ranjan, 2012. "Offshoring, Unemployment, and Wages: The Role of Labor Market Institutions," Working Papers 121302, University of California-Irvine, Department of Economics.
  2. Decreuse, Bruno, 2003. "Choosy search and the mismatch of talents," MPRA Paper 3636, University Library of Munich, Germany, revised Feb 2007.
  3. Delacroix, Alain, 2006. "A multisectorial matching model of unions," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 573-596, April.
  4. Xiaoming Cai & Pieter A. Gautier & Makoto Watanabe, 2012. "Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources," Tinbergen Institute Discussion Papers 12-086/3, Tinbergen Institute.

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