Unions in a Frictional Labor Market
AbstractWe analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. We take a benevolent view of the union in assuming it to care equally about employed and unemployed workers and we assume, moreover, that it is fully rational, thus taking job creation into account when making its wage demands. Under these assumptions, if the union is also able to fully commit to future wages it generates an efficient level of long-run unemployment. However, in the short run, it uses its market power to collect surpluses from firms with existing matches by raising current wages above the efficient level. These elements give rise to a time inconsistency. Without commitment, and in a Markov-perfect equilibrium, not only is unemployment well above its efficient level, but the union wage also exhibits endogenous real stickiness which amplifies the responses of vacancy creation and unemployment to shocks. We consider extensions to partial unionization and collective bargaining between a labor union and an employers’ association.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2012-014.
Length: 49 pages
Date of creation: Jan 2012
Date of revision:
Labor unions; frictional labor markets; time-inconsistency;
Other versions of this item:
- E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-05 (All new papers)
- NEP-DGE-2012-06-05 (Dynamic General Equilibrium)
- NEP-LAB-2012-06-05 (Labour Economics)
- NEP-MAC-2012-06-05 (Macroeconomics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
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