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Welfare Effects of Local versus Central Wage Bargaining


  • Marcus Dittrich


The paper analyses the welfare effects of union bargaining (de)centralization in a dual labour market with a unionized and a competitive sector. We show that social welfare depends on both the structure of the union's objective function and the elasticities of labour demand in both sectors. The welfare-maximizing employment allocation can be obtained under a high degree of centralization if the union maximizes the total wage-bill. Otherwise, if the union is rent maximizing, welfare is higher under local bargaining. However, in that case neither central nor local wage setting yields the social optimum. Copyright 2010 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd.

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  • Marcus Dittrich, 2010. "Welfare Effects of Local versus Central Wage Bargaining," LABOUR, CEIS, vol. 24(1), pages 26-34, March.
  • Handle: RePEc:bla:labour:v:24:y:2010:i:1:p:26-34

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    References listed on IDEAS

    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    2. Ichniowski, Casey & Shaw, Kathryn & Prennushi, Giovanna, 1997. "The Effects of Human Resource Management Practices on Productivity: A Study of Steel Finishing Lines," American Economic Review, American Economic Association, vol. 87(3), pages 291-313, June.
    3. Stefano DellaVigna & M. Daniele Paserman, 2005. "Job Search and Impatience," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 527-588, July.
    4. Lalith Munasinghe & Nachum Sicherman, 2000. "Why Do Dancers Smoke? Time Preference, Occupational Choice, and Wage Growth," NBER Working Papers 7542, National Bureau of Economic Research, Inc.
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