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Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach

Author

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  • Marcus Dittrich

    (Chemnitz University of Technology, Faculty of Economics and Business Administration)

Abstract

This paper aims at contributing to the labour market effects of minimum wages and unemployment benefits from a game-theoretic viewpoint. In a dual labour market model, the first sector outcome is characterised by bargaining between unions and firms, while in the second sector firms have to pay a statutory minimum wage. The model shows that the effects of minimum wages differ from those of unemployment benefits. Moreover, we show that the labour market outcome depends on the underlying game-theoretic bargaining solution. That is, the labour market effects of unemployment benefits and minimum wages in the Nash bargaining solution differ substantially from the effects if bargaining follows the Kalai-Smorodinsky solution.

Suggested Citation

  • Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
  • Handle: RePEc:cuf:journl:y:2010:v:11:i:2:p:209-229
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    References listed on IDEAS

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    3. Alan Manning, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1111-1125.
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    Citations

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    Cited by:

    1. l'Haridon, Olivier & Malherbet, Franck & Pérez-Duarte, Sébastien, 2013. "Does bargaining matter in the small firms matching model?," Labour Economics, Elsevier, vol. 21(C), pages 42-58.
    2. Pandelis Mitsis, 2015. "Effects of Minimum Wages on Total Employment: Evidence from Cyprus," Journal of Labor Research, Springer, vol. 36(3), pages 318-345, September.
    3. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.

    More about this item

    Keywords

    Nash solution; Kalai-Smoro-dinsky solution; Union bargaining; Minimum wages; Unemployment benefits;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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