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Productivity Shocks in a Union‐Duopoly Model

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  • António Brandão
  • Joana Pinho

Abstract

We study the impacts of idiosyncratic productivity shocks when: firms have asymmetric productivities; firms and unions bargain over wages; and firms decide employment. The efficient firm pays a higher wage but has lower marginal production costs (due to its productivity advantage). Profits and worker surplus are higher at the efficient firm. A positive productivity shock affecting the efficient firm is always welfare improving; while if affecting the inefficient firm it may be welfare detrimental (if consumers' gain does not compensate the loss in worker surplus and industry profit). Consumer surplus increases more when the productivity shock affects the inefficient firm.

Suggested Citation

  • António Brandão & Joana Pinho, 2018. "Productivity Shocks in a Union‐Duopoly Model," Manchester School, University of Manchester, vol. 86(6), pages 722-756, December.
  • Handle: RePEc:bla:manchs:v:86:y:2018:i:6:p:722-756
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    File URL: https://doi.org/10.1111/manc.12222
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    More about this item

    JEL classification:

    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D60 - Microeconomics - - Welfare Economics - - - General

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