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Two-stage bargaining with coverage extension in a dual labour market

  • Roberts, Mark A.
  • Staehr, Karsten
  • Tranaes, Torben

This paper studies two-stage bargaining in a simple general equilibrium model with a dual labour market. We analyse the case where agreements reached at the central level in the union sector extend beyond this sector. Conditions are identified under which firms and unions have a commonality of interest in extending coverage of a minimum wage to the non-union sector of the economy. In many countries, labour markets comprise a primary sector with high non-market clearing wages and job queues, and a secondary sector with market clearing. The latter arises endogenously in our model: it is optimal for the union sector to impose a market clearing wage on the non-union sector. This suggests that coverage extension can increase welfare.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 44 (2000)
Issue (Month): 1 (January)
Pages: 181-200

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Handle: RePEc:eee:eecrev:v:44:y:2000:i:1:p:181-200
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  1. McDonald, Ian M & Solow, Robert M, 1985. "Wages and Employment in a Segmented Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1115-41, November.
  2. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
  3. Manning, Alan, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1111-25, November.
  4. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  5. Holden, Steinar, 1988. " Local and Central Wage Bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 93-99.
  6. David Neumark & William Wascher, 1995. "Minimum wage effects on school and work transitions of teenagers," Finance and Economics Discussion Series 95-7, Board of Governors of the Federal Reserve System (U.S.).
  7. Mark A. Roberts, & Karsten Staehr Torben Tranaes,, . "Two-Stage Bargaining and Minimum Wages in a Dual Labour Market," Discussion Papers 97/4, University of Nottingham, School of Economics.
  8. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-93.
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