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Wage Bargaining in an Optimal Control Framework: A Dynamic Version of the Right-to-Manage Model

Author

Listed:
  • Marco Guerrazzi

    (Department of Economics, University of Pisa)

Abstract

This paper aims to represent wage bargaining as an optimal control problem. Specifically, by assuming that employment follows a stock adjustment principle towards the level that maximises profits, i.e., towards labour demand, we build an intertemporal optimising model in which the real wage is continuously set by an infinitely-lived omniscient arbitrator that is called in to resolve the dispute between the workers and the employers. Our theoretical proposal allows to show that unions may speed up the adjustment to equilibrium and it suggests that standard (static) models may understate the distortions implied by wage bargaining.

Suggested Citation

  • Marco Guerrazzi, 2007. "Wage Bargaining in an Optimal Control Framework: A Dynamic Version of the Right-to-Manage Model," Open Discussion Papers in Economics 61, The Open University, Faculty of Social Sciences, Department of Economics.
    • Handle: RePEc:opn:wpaper:61
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    Citations

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    Cited by:

    1. Marco Guerrazzi, 2020. "Wage and employment determination in a dynamic insider–outsider model," Evolutionary and Institutional Economics Review, Springer, vol. 17(1), pages 1-23, January.
    2. Marco Guerrazzi, 2021. "Wage bargaining as an optimal control problem: a dynamic version of the efficient bargaining model," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(1), pages 359-374, June.
    3. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.
    4. Cabo, Francisco & Martín-Román, Ángel L., 2017. "Dynamic collective bargaining. Frictional effects under open-shop industrial relations," MPRA Paper 77562, University Library of Munich, Germany.
    5. Marco Guerrazzi & Pier Giuseppe Giribone, 2021. "Dynamic wage bargaining and labour market fluctuations: the role of productivity shocks," SN Business & Economics, Springer, vol. 1(8), pages 1-20, August.

    More about this item

    Keywords

    Wage Bargaining; Optimal Control Theory; Right-to-Manage Model and Numerical Solutions;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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