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The Effects of Union Wage-Settings on Firms’ Production Factor Decisions

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  • Heshmati, Almas

    ()
    (Jönköping University, Sogang University)

  • Haouas, Ilham

    ()
    (Abu Dhabi University)

Abstract

This study is concerned with the development of a theoretical model and its empirical application to the estimation of the interaction between firms and trade union in determining wages and employment. The focus is on analyzing the effects of unions’ demands on the firm’s choice of factors of production. In a two-step process the union and firm determine wages and capital stock, conditional on which the firm decides on production factors of employment, working hours and capital operating time. We suggest the use of a panel data approach applied to manufacturing data. A dynamic model is specified in which the optimal levels of the variables of interest and the speed of their adjustments are modeled in terms of observable policy variables.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 689.

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Length: 13 pages
Date of creation: Jan 2003
Date of revision:
Publication status: published in: Applied Economics Letters, 2004, 11 (7), 415-420
Handle: RePEc:iza:izadps:dp689

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Keywords: manufacturing; wage bargaining; employment; capital stock; work hours; capital operating time; panel data;

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References

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  1. Oswald, Andrew J, 1982. "Trade Unions, Wages and Unemployment: What Can Simple Models Tell Us?," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 526-45, November.
  2. Horn, Henrik & Svensson, Lars E O, 1986. "Trade Unions and Optimal Labour Contracts," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 96(382), pages 323-41, June.
  3. Pencavel, John H, 1984. "The Tradeoff between Wages and Employment in Trade Union Objectives," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 99(2), pages 215-31, May.
  4. Simon Anderson & Michael Devereux, 1985. "Trade Unions and the Choice of Capital Stock," Working Papers, Queen's University, Department of Economics 600, Queen's University, Department of Economics.
  5. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 87(2), pages 160-93.
  6. Subal Kumbhakar & Almas Heshmati & Lennart Hjalmarsson, 2002. "How Fast Do Banks Adjust? A Dynamic Model of Labor-Use with an Application to Swedish Banks," Journal of Productivity Analysis, Springer, Springer, vol. 18(1), pages 79-102, July.
  7. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 576-95, September.
  8. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, American Economic Association, vol. 71(5), pages 896-908, December.
  9. Dertouzos, James N & Pencavel, John H, 1981. "Wage and Employment Determination under Trade Unionism: The International Typographical Union," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1162-81, December.
  10. Calmfors, Lars & Horn, Henrik, 1985. " Classical Unemployment, Accommodation Policies and Adjustment of Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 87(2), pages 234-61.
  11. Colin Lawrence & Robert Z. Lawrence, 1985. "Manufacturing Wage Dispersion: An End Game Interpretation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(1), pages 47-116.
  12. Heshmati, Almas, 2000. "Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries," Working Paper Series in Economics and Finance 394, Stockholm School of Economics, revised 18 Oct 2001.
  13. Holm, Pasi & Honkapohja, Seppo & Koskela, Erkki, 1994. "A monopoly-union model of wage determination with capital and taxes: An empirical application to the Finnish manufacturing," European Economic Review, Elsevier, Elsevier, vol. 38(2), pages 285-303, February.
  14. Pencavel, John, 1985. " Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 87(2), pages 197-225.
  15. Kidd, David P & Oswald, Andrew J, 1987. "A Dynamic Model of Trade Union Behaviour," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 54(215), pages 355-65, August.
  16. 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.
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Cited by:
  1. Heshmati, Almas, 2007. "Labor Market Policy Options of the Kurdistan Regional Government," IZA Discussion Papers 3247, Institute for the Study of Labor (IZA).

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