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Corporatism and Macroeconomic Stabilization Policies

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Author Info
Caeyers B.
Pauwels W.
Abstract

This paper analyzes corporatism in a two-player game which integrates macroeconomic stabilization policy and a policy of social transfers. The government decides on the level of nominal social transfers, and the trade union decides on the nominal wage level. A central finding is that if one assumes that the trade union’s utility not only depends on employment, output and inflation, but also on the level of social transfers, there is always scope for Pareto-improvements, relative to the noncooperative Nash equilibrium. In particular, there always exists a bargained combination of lower wages and higher social benefits that is beneficial for both players. Another important result is that an increase in the degree of inflation aversion of the trade union leads to a lower wage level, a lower level of inflation and a higher level of output. The effect on social transfers depends, among other things, on the degree of inflation aversion of the government. Finally, the paper provides a detailed analysis of when the wage level and the level of social transfers are strategic complements or substitutes for each of the players.

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Paper provided by University of Antwerp, Faculty of Applied Economics in its series Working Papers with number 2006035.

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Length: 28 pages
Date of creation: Dec 2006
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Handle: RePEc:ant:wpaper:2006035

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Burda, Michael C., 1997. "Corporatism, labor unions and the safety net," European Economic Review, Elsevier, vol. 41(3-5), pages 635-646, April. [Downloadable!] (restricted)
  2. Acocella, Nicola & Di Bartolomeo, Giovanni & Pauwels, Wilfried, 2007. "Is there any scope for corporatism in stabilization policies?," MPRA Paper 3584, University Library of Munich, Germany. [Downloadable!]
  3. Di Bartolomeo G. & Pauwels W., 2002. "The issue of instability in a simple policy game between the central bank and the representative union," Working Papers 2002009, University of Antwerp, Faculty of Applied Economics. [Downloadable!]
  4. Cubitt, Robin P, 1995. " Corporatism, Monetary Policy and Macroeconomic Performance: A Simple Game Theoretic Analysis," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(2), pages 245-59, June.
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  1. Acocella, Nicola & Di Bartolomeo, Giovanni, 2007. "The Cost of Social Pacts," MPRA Paper 3585, University Library of Munich, Germany. [Downloadable!]
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