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Comment on E. J. Driffill, “Macroeconomic Stabilization Policy and Trade Union Behavior as a Repeated Game”

In: Trade Unions, Wage Formation and Macroeconomic Stability

Author

Listed:
  • Stanley Fischer

    (Massachusetts Institute of Technology)

  • Matti Pohjola

    (University of Helsinki)

Abstract

Driffill’s paper is motivated by the notion that government concern over the level of unemployment enables unions to obtain higher real wages than they otherwise would, with the paradoxical result that stabilization policy raises the average unemployment rate. A closely related problem has been studied by Barro & Gordon (1983), in the context of the inflation unemployment tradeoff. In that case, government attempts to reduce the unemployment rate end up creating higher inflation, the process reaching equilibrium when the marginal cost of inflation to the government is equal to the putative gain that would be obtained from lower (though unattainable) unemployment.

Suggested Citation

  • Stanley Fischer & Matti Pohjola, 1986. "Comment on E. J. Driffill, “Macroeconomic Stabilization Policy and Trade Union Behavior as a Repeated Game”," Palgrave Macmillan Books, in: Lars Calmfors & Henrik Horn (ed.), Trade Unions, Wage Formation and Macroeconomic Stability, pages 185-192, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-08596-5_11
    DOI: 10.1007/978-1-349-08596-5_11
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    Cited by:

    1. Vijlbrief, J.A. & Wijngaert, R.F., 1991. "Unions and the link : wage determination by a single encompassing trade union when unemployment benefits are linked to wages," Serie Research Memoranda 0062, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.

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