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

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Author Info

  • 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.

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Bibliographic Info

Paper provided by The Open University, Faculty of Social Sciences, Department of Economics in its series Open Discussion Papers in Economics with number 61.

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Length: 20 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:opn:wpaper:61

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Related research

Keywords: Wage Bargaining; Optimal Control Theory; Right-to-Manage Model and Numerical Solutions;

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