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Unionisation Structures and Firms' Incentives for Productivity Enhancing Investments

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Author Info
Haucap, Justus (University of the Federal Armed Forces Hamburg)
Christian Wey

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Abstract

This paper examines how unionisation structures that differ in the degree of wage centralisation affect firms' incentives to increase labour productivity. We distinguish three modes of unionisation with increasing degree of centralisation. (1) "Decentralisation" where wages are determined independently at the firm-level, (2) "coordination" where an industry union sets individual wages for all firms at the firm-level, and (3) "centralisation" where a uniform wage rate is set for the entire industry. We show that firms' investment incentives are largest under complete centralisation. However, investment incentives are non-monotone in the degree of centralisation so that "decentralization" carries higher investment incentives than "coordination." Depending on the innovation outcome, workers' wage bill is maximised under centralisation" if firms' productivity differences remain small. Otherwise, workers prefer an intermediate degree of centralisation, which holds innovative activity down at its lowest level. Labour market policy can spur innovation by either decentralising unionisation structures or by imposing non-discrimination rules on monopoly unions.

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Paper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 102.

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Date of creation: 04 Jun 2003
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Handle: RePEc:ecj:ac2003:102

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Keywords: unionised oligopoly innovation productivity labour market institutions

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  20. Kleinknecht, Alfred, 1998. "Is Labour Market Flexibility Harmful to Innovation?," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 387-96, May.
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(explanations, 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. Justus Haucap & Christian Wey, 2004. "Unionisation Structures and Innovation Incentives," Discussion Papers of DIW Berlin 398, DIW Berlin, German Institute for Economic Research. [Downloadable!]
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