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Trade Unions, Non-Binding Wage Agreements, and Capital Accumulation

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Author Info
Michael B. Devereux
Ben Lockwood

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Abstract

This paper provides a counterexample to some recent results of Grout (1984) which state that in a bargaining situation without binding wage agreements, the capital stock will be biased downwards. In a general equilibrium setting, this result may be reversed. The argument is built around a simple Diamond-type overlapping generations model where the young work and old own both capital and shares in firms. A move from binding to non-binding wage contracts may increase the capital stock in this environment. A rise in trade-union power will generally increase the capital stock and reduce the speed of the economy's adjustment.

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Publisher Info
Paper provided by Queen's University, Department of Economics in its series Working Papers with number 743.

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Length: 21 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:qed:wpaper:743

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Keywords: trade unions wages economic equilibrium enterprises labour

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  1. Daniel Cardona & Fernando Sanchez Losada, 2003. "Union Power, Minimum Wage Legislation, Endogenous Labor Supplies and Production," Working Papers in Economics 105, Universitat de Barcelona. Espai de Recerca en Economia. [Downloadable!]
  2. Graziella Bertocchi, 2003. "Labor Market Institutions, International Capital Mobility, and the Persistence of Underdevelopment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(3), pages 637-650, July. [Downloadable!] (restricted)
  3. Alberto Alesina et al., 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June. [Downloadable!] (restricted)
    Other versions:
  4. Alexander Kemnitz, 2005. "Can Immigrant Employment Alleviate the Demographic Burden? The Role of Union Centralization," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  5. Erling Steigum, 2001. "Trade Unions and the Burden of the Public Debt," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. Erkki Koskela & Mikko Puhakka, 2006. "Stability and Dynamics in an Overlapping Generations Economy under Flexible Wage Negotiation and Capital Accumulation," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  7. Clemens Fuest & Bernd Huber, 1998. "Why Do Countries Subsidize Investment and Not Employment?," NBER Working Papers 6685, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Erling Steigum Jr., . "Fiscal Deficits, Asset Prices and Intergenerational Distribution in an Open Unionized Economy," EPRU Working Paper Series 97-19, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  10. Erkki Koskela & Mikko Puhakka, 2007. "Stability and Dynamics in an Overlapping Generations Economy with Flexible Wage Negotiations," IZA Discussion Papers 3246, Institute for the Study of Labor (IZA). [Downloadable!]
  11. Natasha Miaouli, 2001. "Employment and Capital Accumulation in Unionised Labour Markets: evidence from five south-European countries," International Review of Applied Economics, Taylor and Francis Journals, vol. 15(1), pages 5-29, January. [Downloadable!] (restricted)
  12. Matti Virén, 2005. "Why do capital intensive companies pay higher wages?," Labor and Demography 0508014, EconWPA. [Downloadable!]
  13. Coimbra, Rui & Lloyd-Braga, Teresa & Modesto, Leonor, 2002. "Endogenous Growth Fluctuations in Unionised Economy with Productive Externalities," CEPR Discussion Papers 3230, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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