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Two-Stage Bargaining with Coverage Extension in a Dual Labour Market

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  • Mark A. Roberts

    (University of Nottingham)

  • Karsten Stæhr

    (University of Copenhagen Institute of Economics)

  • Torben Tranæs

    (University of Copenhagen Institute of Economics)

Abstract

This paper studies two-stage bargaining in a simple general equilibrium model with a dual labour market. We analyse the case where agreements reached at the central level in the unionized sector extend beyond this sector, which seems to be a characteristic feature of continental European labour markets. Conditions are identified under which firms and unions have a commonality of interest in extending coverage of a minimum wage to the non-unionized sector of the economy. In many countries, labour markets comprise a primary sector with high non-market clearing wages and job queues, and a secondary sector with market clearing. The latter arises endogenously in our model: it is optimal for the unionized sector to impose a market clearing wage on the non-unionized sector. This suggests that coverage extension can increase welfare.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 97-13.

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Length: 26 pages
Date of creation: Nov 1997
Date of revision:
Publication status: Published in: European Economic Review 44(1) 2000, 181-200
Handle: RePEc:kud:kuiedp:9713

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Keywords: coverage extension; two-stage bargaining; minimum wages; dual labour market; centralization;

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References

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  1. Mark A. Roberts, & Karsten Staehr Torben Tranaes,, . "Two-Stage Bargaining and Minimum Wages in a Dual Labour Market," Discussion Papers 97/4, University of Nottingham, School of Economics.
  2. David Neumark & William Wascher, 1995. "Minimum wage effects on school and work transitions of teenagers," Finance and Economics Discussion Series 95-7, Board of Governors of the Federal Reserve System (U.S.).
  3. Manning, Alan, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1111-25, November.
  4. McDonald, Ian M & Solow, Robert M, 1985. "Wages and Employment in a Segmented Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1115-41, November.
  5. Jeremy I. Bulow & Lawrence H. Summers, 1985. "A Theory of Dual Labor Markets with Application to Industrial Policy, Discrimination and Keynesian Unemployment," NBER Working Papers 1666, National Bureau of Economic Research, Inc.
  6. Holden, Steinar, 1988. " Local and Central Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 93-99.
  7. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
  8. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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Cited by:
  1. Wapler, Rüdiger, 2001. "Unions, efficiency wages, and unemployment," Tübinger Diskussionsbeiträge 210, University of Tübingen, School of Business and Economics.
  2. Dittrich, Marcus, 2007. "Minimum Wages and Union Bargaining in a Dual Labour Market," Dresden Discussion Paper Series in Economics 13/07, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  3. Wapler, Rüdiger, 2000. "Unions, monopolistic competition and unemployment," Tübinger Diskussionsbeiträge 180, University of Tübingen, School of Business and Economics.
  4. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.

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