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A Dynamic Contracting Model for Wages and Employment in three European Economies

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  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

  • Palm, Franz

    (University of Limburg, Faculty of Economics and Business Administration, Maastricht)

  • Pfann, Gerard

    (University of Limburg, Faculty of Economics and Business Administration, Maastricht)

Abstract

We present a dynamic non-linear model for an efficient contracting between a firm facing adjustment costs on labour and a union having preferences which are subject to habit formation. The model’s first order necessary conditions are estimated for the French, the Dutch and the Belgian labour market. The estimation results turned out to be remarkably similar for the three countries. Two alternative hypotheses are also investigated : (i) a myopic behaviour of the union and (ii) a competitive labour market. The performance of the efficient contract model with a forward-looking union is found to be superior to that of the neo-classical model in explaining the dynamics of employment and wages in the three countries.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1993021.

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Length: 19
Date of creation: 01 Nov 1993
Date of revision:
Handle: RePEc:ctl:louvir:1993021

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Keywords: employment; wages;

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References

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  1. Strand, Jon, 1989. "Monopoly unions versus efficient bargaining : A repeated game approach," European Journal of Political Economy, Elsevier, vol. 5(4), pages 473-486.
  2. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, Econometric Society, vol. 58(1), pages 165-93, January.
  3. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  4. Boyer, Marcel, 1983. "Rational demand and expenditures patterns under habit formation," Journal of Economic Theory, Elsevier, Elsevier, vol. 31(1), pages 27-53, October.
  5. Frank, Robert H. & Hutchens, Robert M., 1993. "Wages, seniority, and the demand for rising consumption profiles," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 21(3), pages 251-276, August.
  6. Osano, Hiroshi & Inoue, Tohru, 1991. "Testing between Competing Models of Real Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 669-88, August.
  7. Alogoskoufis, George & Manning, Alan, 1991. "Tests of alternative wage employment bargaining models with an application to the UK aggregate labour market," European Economic Review, Elsevier, Elsevier, vol. 35(1), pages 23-37, January.
  8. Graafland, J J, 1991. "On the Causes of Hysteresis in Long-Term Unemployment in the Netherlands," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 53(2), pages 155-70, May.
  9. David Card, 1986. "Efficient Contracts with Costly Adjustment: Short-RUn Employment Determination for Airline Mechanics," NBER Working Papers 1931, National Bureau of Economic Research, Inc.
  10. Pashardes, Panos, 1986. "Myopic and Forward Looking Behavior in a Dynamic Demand System," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 387-97, June.
  11. de la Croix, David & Fagnart, Jean-Francois, 1995. "Underemployment of production factors in a forward-looking model," Labour Economics, Elsevier, Elsevier, vol. 2(2), pages 131-159, June.
  12. MaCurdy, Thomas E & Pencavel, John H, 1986. "Testing between Competing Models of Wage and Employment Determination in Unionized Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S3-S39, June.
  13. Peter C.B. Phillips, 1985. "Time Series Regression with a Unit Root," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 740R, Cowles Foundation for Research in Economics, Yale University, revised Feb 1986.
  14. Paz Espinosa, Maria & Rhee, Changyong, 1989. "Efficient Wage Bargaining as a Repeated Game," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(3), pages 565-88, August.
  15. Lockwood, Ben & Manning, Alan, 1989. "Dynamic Wage-Employment Bargaining with Employment Adjustment Costs," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 1143-58, December.
  16. Brown, James N & Ashenfelter, Orley, 1986. "Testing the Efficiency of Employment Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S40-S87, June.
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Cited by:
  1. de la Croix, David, 1995. "Economic Growth and the Relativity of Satisfaction," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales), Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) 1995023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Ester Faia & Lorenza Rossi, 2010. "Unions Power, Collective Bargaining and Optimal Monetary Policy," Quaderni di Dipartimento, University of Pavia, Department of Economics and Quantitative Methods 126, University of Pavia, Department of Economics and Quantitative Methods.
  3. Mattesini, Fabrizio & Rossi, Lorenza, 2009. "Optimal monetary policy in economies with dual labor markets," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(7), pages 1469-1489, July.
  4. Rossi, Lorenza & Mattesini, Fabrizio, 2007. "Productivity Shock and Optimal Monetary Policy in a Unionized Labor Market. Forthcoming: The Manchester School," MPRA Paper 8414, University Library of Munich, Germany, revised 2008.
  5. Lorenza Rossi & Fabrizio Mattesini, 2008. "We analyze, in this paper, a DSGE New Keynesian model with indi- visible labor where firms may belong to two different final goods producing sectors one where wages and employment are determined in co," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0077, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  6. Falch, Torberg, 2001. "Collective bargaining in the public sector and the role of budget determination," European Journal of Political Economy, Elsevier, vol. 17(1), pages 75-99, March.
  7. Modesto, Leonor & Thomas, Jonathan P., 2001. "An analysis of labour adjustment costs in unionized economies," Labour Economics, Elsevier, Elsevier, vol. 8(4), pages 475-501, September.
  8. Xavier Raurich & Valeri Sorolla, . "Unemployment and Wage Formation in a Growth Model with Public Capital," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 508.02, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).

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