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Wage‐setting coordination in a small open economy

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  • Petteri Juvonen

Abstract

This paper studies wage‐setting coordination in a two‐sector, open economy dynamic stochastic general equilibrium model. Two large sectoral unions anticipate the effects of their wage demands on aggregate variables. In an open economy, there are externalities that the unions can take into account to increase aggregate welfare, but the strategic interaction between the sectoral unions tends to erode this gain. When wage coordination takes place through a wage norm set by either of the sectors, this minimizes the strategic interaction. However, wage norms create welfare losses as sector‐specific wage adjustment is required to make an efficient adjustment to shocks.

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  • Petteri Juvonen, 2023. "Wage‐setting coordination in a small open economy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(1), pages 253-286, January.
    • Handle: RePEc:bla:scandj:v:125:y:2023:i:1:p:253-286
    DOI: 10.1111/sjoe.12495
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    References listed on IDEAS

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