Fairness considerations in labor union wage setting: A theoretical analysis
AbstractWe consider a theoretical model in which unions not only take the outside option into account, but also base their wage-setting decisions on an internal reference, called the fairness reference. Wage and employment outcomes and the shape of the aggregate wagesetting curve depend on the weight and the size of the fairness reference relative to the outside option. If the fairness reference is relatively high compared to the outside option, higher wages and lower employment than in the standard model will prevail. If hit by an adverse technology shock, the economy will then react with a stronger downward adjustment in employment, whereas real wages are more rigid than in the standard model. With a low fairness reference the opposite results are obtained. An increase in the fairness weight amplifies the deviations of wages and employment from those of the standard model. It also leads to an increase in the degree of real wage rigidity if the fairness reference is high and an increase in the degree of real wage flexibility if the fairness reference is low. Thus, higher wages go hand in hand with more pronounced wage stickiness. --
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Bibliographic InfoPaper provided by University of Hohenheim, Center for Research on Innovation and Services (FZID) in its series FZID Discussion Papers with number 56-2012.
Date of creation: 2012
Date of revision:
Labor Unions; Fairness; Wage Rigidity; Wage Flexibility; Wage Stickiness; Wage-Setting Curve; Wage-Setting Process; Unemployment;
Other versions of this item:
- Strifler, Matthias & Beissinger, Thomas, 2012. "Fairness Considerations in Labor Union Wage Setting: A Theoretical Analysis," IZA Discussion Papers 6799, Institute for the Study of Labor (IZA).
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-09 (All new papers)
- NEP-HME-2012-09-09 (Heterodox Microeconomics)
- NEP-LAB-2012-09-09 (Labour Economics)
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