Authors who consider efficient bargaining on the labor market predominantly focus on the Nash-bargaining solution. It seems, however, that actual labor market negotiations between an employers' federation and a labor union are often characterized by mutual concessions, which may be accounted for by an application of the Kalai-Smorodinsky solution to labor-market negotiations. Correspondingly, we investigate how a government can influence the equilibrium on the labor market by changing the reservation wage when the equilibrium is determined by the Kalai-Smorodinsky solution. We find that the induced employment effects may differ substantially when compared with the Nash bargaining solution. Hence, substituting the Kalai-Smorodinsky by the Nash bargaining solution is not innocuous, when actual negotiations are characterized by mutual incremental concessions.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 941.
Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
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