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Awareness of General Equilibrium Effects and Unemployment

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Author Info

  • Gersbach, Hans

    ()
    (ETH Zurich)

  • Schniewind, Achim

    ()
    (Heidelberg University)

Abstract

We examine wage-bargaining in a two-sector economy when employers and labor unions in each sector are not always aware of all general equilibrium feedback effects. We show analytically that if agents only consider labor demand effects, low real wages and low unemployment result. With an intermediate view, i.e. when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are considered at once, low real wages and low unemployment again result. The assumption that unions and employers’ federations are not able to incorporate all feedback effects from other sectors may explain the persistence of high unemployment in Europe.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 394.

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Length: 31 pages
Date of creation: Nov 2001
Date of revision:
Publication status: published as 'Collective Bargaining, Wareness of General Equilibrium Effects, and Unemployment' in: International Economic Review, 2011, 52 (3), 693 - 712
Handle: RePEc:iza:izadps:dp394

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Keywords: Sectoral wage-bargaining; awareness of general equilibrium effects; unemployment;

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References

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  1. C Bean, 1992. "European Unemployment: A Survey," CEP Discussion Papers dp0071, Centre for Economic Performance, LSE.
  2. Oswald Andrew J., 1996. "A Conjecture on the Explanation for High Unemployment in the Industrialized Nations : Part I," The Warwick Economics Research Paper Series (TWERPS) 475, University of Warwick, Department of Economics.
  3. David T. Coe & Dennis J. Snower, 1997. "Policy Complementarities: The Case for Fundamental Labor Market Reform," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 1-35, March.
  4. Saint-Paul, Gilles, 1995. "Some political aspects of unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 575-582, April.
  5. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  6. Ours, J.C. van & Nickell, S.J., 2000. "The Netherlands and the United Kingdom: A European unemployment miracle?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84119, Tilburg University.
  7. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis And The European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  8. Paul Krugman, 1994. "Past and prospective causes of high unemployment," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Jan, pages 49-98.
  9. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, December.
  10. Gersbach, Hans & Schniewind, Achim, 2001. "Learning of General Equilibrium Effects and the Unemployment Trap," IZA Discussion Papers 254, Institute for the Study of Labor (IZA).
  11. Boone, Jan, 2000. "Technological Progress, Downsizing and Unemployment," Economic Journal, Royal Economic Society, vol. 110(465), pages 581-600, July.
  12. Gilles Saint-Paul, 1994. "Searching for the Virtues of the European Model," IMF Working Papers 94/46, International Monetary Fund.
  13. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
  14. Manzini, P., 1996. "Game Theoretic Models of Wage Bargaining," Discussion Papers 9615, Exeter University, Department of Economics.
  15. Evans, George W. & Honkapohja, Seppo, 1999. "Learning dynamics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 7, pages 449-542 Elsevier.
  16. Burda, Michael & Wyplosz, Charles, 1994. "Gross worker and job flows in Europe," European Economic Review, Elsevier, vol. 38(6), pages 1287-1315, June.
  17. Saint-Paul, G., 1996. "The rise and persistence of rigidities," DELTA Working Papers 96-21, DELTA (Ecole normale supérieure).
  18. Saint-Paul, Gilles, 2000. "The Political Economy of Labour Market Institutions," OUP Catalogue, Oxford University Press, number 9780198293323, Octomber.
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Citations

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Cited by:
  1. Gersbach, Hans & Schniewind, Achim, 2008. "Imperfect competition, general equilibrium and unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1381-1398, May.
  2. Lars Calmfors & Giancarlo Corsetti & Seppo Honkapohja & John Kay & Willi Leibfritz & Gilles Saint-Paul & Hans-Werner Sinn & Xavier Vives, 2004. "Labour Market Reform in Europe," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 49-60, October.
  3. Schettkat, Ronald & Yocarini, Lara, 2001. "Education Driving the Rise in Dutch Female Employment: Explanations for the Increase in Part-time Work and Female Employment in the Netherlands, Contrasted with Germany," IZA Discussion Papers 407, Institute for the Study of Labor (IZA).
  4. Saint-Paul, Gilles, 2005. "Making Sense of Bolkestein-Bashing: Trade Liberalization Under Segmented Labour Markets," CEPR Discussion Papers 5100, C.E.P.R. Discussion Papers.

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