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Wage Bargaining: Reconciling Theory and Evidence

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Author Info
Eric Toulemonde () (Department of Economics, University of Aarhus, Denmark)

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Abstract

One of the main results of the theoretical models of wage bargaining is that wages are independent of productivity when the production function has a constant elasticity. However empirical studies show that in the long run, wages fully react to productivity shocks. This paper reconciles both results. It identifies the assumptions that yield the theoretical result. By dropping these assumptions it shows that in the short run the degree of real wage rigidity increases with the union power. In the long run, real wages fully respond to productivity changes.

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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 1999-19.

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Handle: RePEc:aah:aarhec:1999-19

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Related research
Keywords: Productivity; union; real wages;

Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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This page was last updated on 2009-12-10.

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