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Monetary Policy with Weakened Unions

Author

Listed:
  • Amélie Barbier-Gauchard
  • Thierry Betti
  • Francesco De Palma

Abstract

We assess the impact of union bargaining power on inflation and employment under efficiency bargaining according to Mac Donald & Solow [1981]. We consider a Stackelberg game between the Central Bank and social partners (firms and unions). Firms and unions negotiate employment and nominal wage, while the Central Bank, which plays as leader, sets the inflation rate. We show that a decrease in union bargaining power tends to reduce nominal wage and employment. In such a context of a leader Central Bank, the optimal monetary policy consists in a higher optimal inflation rate to prevent a rise in unemployment. Moreover, we demonstrate that increasing the optimal inflation rate has more important effects when the Central Bank is weakly conservative. These results argue for reducing Central Bank conservatism to compensate for the macroeconomic impact of declining union bargaining power.

Suggested Citation

  • Amélie Barbier-Gauchard & Thierry Betti & Francesco De Palma, 2023. "Monetary Policy with Weakened Unions," Revue d'économie politique, Dalloz, vol. 133(4), pages 525-540.
    • Handle: RePEc:cai:repdal:redp_334_0525
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    Cited by:

    1. Atilla Aydın, 2024. "Economic Factors Affecting the Collective Bargaining Agreement Coverage Rate in Turkey: Cointegration Approach," Istanbul Journal of Economics-Istanbul Iktisat Dergisi, Istanbul Journal of Economics-Istanbul Iktisat Dergisi, vol. 0(40), pages 134-150, June.
    2. Xakousti Chrysanthopoulou & Evangelos Ioannidis & Moïse Sidiropoulos, 2025. "Openness, Unionized Labor Markets, and Monetary Policy," Mathematics, MDPI, vol. 13(7), pages 1-26, April.

    More about this item

    Keywords

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    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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