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Unions in a Frictional Labor Market

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  • Per Krusell
  • Leena Rudanko

Abstract

We analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. We take a benevolent view of the union, assuming it to care equally about employed and unemployed workers, to treat identical workers in identical jobs the same, as well as to be fully rational, taking job creation into account when making its wage demands. Under these assumptions, if the union is able to fully commit to future wages, it achieves an efficient level of long-run unemployment. In the short run, however, the union raises current wages above the efficient level, in order to appropriate surpluses from firms with existing matches. The union wage policy is thus time-inconsistent. Without commitment, and in a Markov-perfect equilibrium, not only is unemployment well above its efficient level, but the union wage also exhibits endogenous real stickiness, which leads to increased volatility in the labor market. We consider extensions to partial unionization and collective bargaining between the union and an employers’ association.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18218.

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Date of creation: Jul 2012
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Handle: RePEc:nbr:nberwo:18218

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References

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  1. Guido Menzio & Shouyong Shi, 2009. "Block Recursive Equilibria for Stochastic Models of Search on the Job," NBER Working Papers 14907, National Bureau of Economic Research, Inc.
  2. Per Krusell & Fernando M. Martin & Jose-Victor Rios-Rull, 2006. "Time Consistent Debt," 2006 Meeting Papers, Society for Economic Dynamics 210, Society for Economic Dynamics.
  3. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, Institute for the Study of Labor (IZA).
  4. Baris Kaymak & Omer Acikgoz, 2011. "The Rising Skill Premium and Deunionization in the United States," 2011 Meeting Papers 1433, Society for Economic Dynamics.
  5. Emin M. Dinlersoz & Jeremy Greenwood, 2012. "The Rise and Fall of Unions in the U.S," NBER Working Papers 18079, National Bureau of Economic Research, Inc.
  6. Delacroix, Alain, 2006. "A multisectorial matching model of unions," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(3), pages 573-596, April.
  7. Krusell, Per & Kuruscu, Burhanettin & Smith Jr., Anthony A, 2001. "Equilibrium Welfare and Government Policy with Quasi-Geometric Discounting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2693, C.E.P.R. Discussion Papers.
  8. Wouter J. den Haan & Garey Ramey & Joel Watson, 1997. "Job Destruction and Propagation of Shocks," NBER Working Papers 6275, National Bureau of Economic Research, Inc.
  9. Booth, Alison & Schiantarelli, Fabio, 1987. "The Employment Effects of a Shorter Working Week," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 54(214), pages 237-48, May.
  10. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, American Economic Association, vol. 95(1), pages 25-49, March.
  11. Card, David, 1986. "Efficient Contracts with Costly Adjustment: Short-run Employment Determination for Airline Mechanics," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 1045-71, December.
  12. Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, December.
  13. repec:cen:wpaper:12-12 is not listed on IDEAS
  14. Modesto, Leonor & Thomas, Jonathan P., 2000. "An Analysis of Labour Adjustment Costs in Unionized Economies," IZA Discussion Papers 225, Institute for the Study of Labor (IZA).
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Unions just cannot help it
    by Economic Logician in Economic Logic on 2012-08-09 14:24:00
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Cited by:
  1. repec:dgr:uvatin:2012086 is not listed on IDEAS
  2. Emin Dinlersoz & Jeremy Greenwood, 2012. "The Rise And Fall Of Unions In The U.S," Working Papers 12-12r, Center for Economic Studies, U.S. Census Bureau, revised Jun 2013.
  3. Camilo Alberto Cárdenas Hurtado & María Alejandra Hernández Montes & Jhon Edwar Torres Gorron, 2014. "An Exploratory Analysis of Heterogeneity on Regional Labour Markets and Unemployment Rates in Colombia: An MFACT approach," BORRADORES DE ECONOMIA 011122, BANCO DE LA REPÚBLICA.
  4. Xiaoming Cai & Pieter A. Gautier & Makoto Watanabe, 2012. "Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources," Tinbergen Institute Discussion Papers 12-086/3, Tinbergen Institute.

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