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Should civil servants be restricted in wage bargaining? A mixed-duopoly approach

Author

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  • Junichiro Ishida

    (Osaka School of International Public Policy, Osaka University)

  • Noriaki Matsushima

    (Graduate School of Business Administration, Kobe University)

Abstract

Should civil servants (employees in the public sector) be allowed to bargain collectively? To answer this question, we construct a model of unionized mixed duopoly and examine the regulatory framework of public institutions, especially focusing on a wage regulation imposed on the public firm. The wage regulation turns out to yield critical welfare implications as it gives rise to two opposing strategic effects: the wage regulation intensifies downstream-market competition while it loosens upstream-market competition. The overall welfare effect is ambiguous, depending crucially on the degree of product differentiation between the firms. We also show that, in contrast to the popular belief, granting the right to bargain collectively to civil servants would not necessarily help them because they tend to demand excessively high wages when they are allowed to bargain collectively. Finally, we briefly discuss a new perspective on the role of profit motives in public institutions when the wages are determined endogenously.

Suggested Citation

  • Junichiro Ishida & Noriaki Matsushima, 2008. "Should civil servants be restricted in wage bargaining? A mixed-duopoly approach," Discussion Papers 2008-49, Kobe University, Graduate School of Business Administration.
    • Handle: RePEc:kbb:dpaper:2008-49
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    References listed on IDEAS

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    More about this item

    Keywords

    Mixed oligopoly; Wage bargaining; Wage regulation; Labor unions; Strategic complements;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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