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Agglomeration and wage bargaining

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  • Kenmei Tsubota

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    (Institute of Economic Research, Kyoto University)

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    Abstract

    This paper examines the role of trade union and the type of wage bargainings in economic geography model. In our setting, wage bargaining is held between immobile workers and mobile entrepreneurs who decide the location of their firm. It is shown that stronger trade unions in both regions would put a stronger pressure toward agglomeration of firms. This is due to the fact that the stronger bargaining power of trade union makes home market effect larger. Under core-periphery distribution of firms, this effect can act the role as anchorage of firms. Stronger trade unions in home region can keep the firms remain in their region. Moreover, we extend to several employment environments, which are the outside option of workers. We show that differences in bargaining structures and employment environments could affect the stability of symmetrically distributed firms, namely symmetry break point. We show that while unemployment rate acts as a centripetal force, not only the degree of bargaining power of trade union but also unemployment benefit can play as a centrifugal force. A key message of the paper is that generous unemployment benefit and higher trade union make the distribution of firms more uneven and sustainable.

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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP675.pdf
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    Bibliographic Info

    Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 675.

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    Length: 30pages
    Date of creation: Jun 2009
    Date of revision:
    Handle: RePEc:kyo:wpaper:675

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    Keywords: Labour market rigidity; Regional Unemployment; Location of firms; Anchorage effect of trade union;

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    10. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer, Springer, vol. 3(4), pages 495-513, October.
    11. Diego Puga, 2002. "European regional policies in light of recent location theories," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 2(4), pages 373-406, October.
    12. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
    13. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    14. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 3(3), pages 229-240, July.
    15. Tani, Massimiliano, 2003. "Have Europeans become more mobile? A note on regional evolutions in the EU: 1988-1997," Economics Letters, Elsevier, Elsevier, vol. 80(1), pages 23-30, July.
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