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Nominal Rigidities in Wage Setting by Rational Trade Unions

  • Benassy, Jean-Pascal

Many rational wage setting schemes, such as the trade unions paradigm, are usually thought to lead to pure real rigidities. In this article, the author constructs a model where a rational trade union without any kind of money illusion sets wage schedules in an economy subject to real and monetary shocks. He makes the realistic assumption that wages can be conditioned on prices. It is found that, although the trade union has the option of fully insulating workers from nominal disturbances, it will rationally choose not to do so and, therefore, nominal rigidities will be present in the economy. Copyright 1995 by Royal Economic Society.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 105 (1995)
Issue (Month): 430 (May)
Pages: 635-43

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Handle: RePEc:ecj:econjl:v:105:y:1995:i:430:p:635-43
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