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A Dynamic Model of Union Behaviour. The Role of an Endogenous Outside Option and Bargaining Centralisation

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  • Schirwitz, Beate
  • Dittrich, Marcus

Abstract

We analyse the role of bargaining centralisation when both the union's outside option and union membership are endogenous and considered in a dynamic framework. A dynamic two-sector model is developed where the wage rate in the first sector is either set by a monopoly union or is the result of efficient bargaining between union and firm. The union's outside option is employment in the second, competitive sector. We extend the dynamic analysis by modelling the outside option as endogenous and show that dynamic models may also overstate employment distortions in this case if bargaining is conducted on a highly centralised stage. Additionally, we offer reflexions along the optimisation process in different scenarios and a comparative static analysis, thus presenting some new general insights into the topic. --

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Bibliographic Info

Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 07/06.

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Date of creation: 2006
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Handle: RePEc:zbw:tuddps:0706

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Related research

Keywords: Dynamic wage bargaining; unions; dual labour market; endogenous outside option; endogenous membership;

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References

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  1. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  2. Blackorby, Charles & Bossert, Walter & Donaldson, David, 1995. "Intertemporal Population Ethics: Critical-Level Utilitarian Principles," Econometrica, Econometric Society, vol. 63(6), pages 1303-20, November.
  3. Thomas Beissinger & Hartmut Egger, 2004. "Dynamic wage bargaining if benefits are tied to individual wages," Oxford Economic Papers, Oxford University Press, vol. 56(3), pages 437-460, July.
  4. Marcus Dittrich, 2008. "Union wage setting in a dual labour market: the role of centralisation," International Economic Journal, Taylor & Francis Journals, vol. 22(4), pages 461-470.
  5. Jones, Stephen R. G., 1987. "Union membership and employment dynamics," Economics Letters, Elsevier, vol. 25(2), pages 197-200.
  6. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398, April.
  7. Chang, Juin-jen & Lai, Ching-chong, 1997. "Union membership and employment dynamics with endogenous union density," Economics Letters, Elsevier, vol. 57(1), pages 119-125, November.
  8. Svejnar, Jan, 1986. "Bargaining Power, Fear of Disagreement, and Wage Settlements: Theory and Evidence from U.S. Industry," Econometrica, Econometric Society, vol. 54(5), pages 1055-78, September.
  9. Chang, Juin-jen & Lai, Ching-chong & Chang, Wen-ya, 1998. "A Dynamic Model of Union Membership and Employment: A Comment," Economica, London School of Economics and Political Science, vol. 65(257), pages 145-51, February.
  10. Kidd, David P & Oswald, Andrew J, 1987. "A Dynamic Model of Trade Union Behaviour," Economica, London School of Economics and Political Science, vol. 54(215), pages 355-65, August.
  11. Fuest, Clemens & Thum, Marcel, 2001. "Immigration and skill formation in unionised labour markets," European Journal of Political Economy, Elsevier, vol. 17(3), pages 557-573, September.
  12. McDonald, Ian M & Solow, Robert M, 1985. "Wages and Employment in a Segmented Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1115-41, November.
  13. Jones, Stephen R G & McKenna, C J, 1994. "A Dynamic Model of Union Membership and Employment," Economica, London School of Economics and Political Science, vol. 61(242), pages 179-89, May.
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Cited by:
  1. Dittrich, Marcus, 2006. "Welfare Effects of Union Bargaining Centralisation in a Two-Sector Economy," MPRA Paper 11, University Library of Munich, Germany, revised Sep 2006.

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