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Collective versus decentralized wage bargaining and the efficient allocation of resources

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  • Cai, Xiaoming
  • Gautier, Pieter A.
  • Teulings, Coen N.
  • Watanabe, Makoto

Abstract

In a search model with two sided heterogeneity and on-the-job search, we compare collective bargaining agreements (CBA) with a decentralized bargaining outcome case. Under CBA, a union chooses a pay-scale schedule and the firm can select a wage from this pay scale after observing match quality. An advantage of collective bargaining agreements is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached. What the most desirable system is, depends on worker bargaining power (β) and the relative efficiency of on- versus off- the job search. We find both for the Netherlands and the US that as long as β lies between 0.1 and 0.7, CBA is less desirable.

Suggested Citation

  • Cai, Xiaoming & Gautier, Pieter A. & Teulings, Coen N. & Watanabe, Makoto, 2014. "Collective versus decentralized wage bargaining and the efficient allocation of resources," Labour Economics, Elsevier, vol. 26(C), pages 34-42.
    • Handle: RePEc:eee:labeco:v:26:y:2014:i:c:p:34-42
    DOI: 10.1016/j.labeco.2013.11.003
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    Cited by:

    1. Evangelia Papapetrou & Pinelopi Tsalaporta, 2018. "Macroeconomic outcomes, collective bargaining and intersectoral productivity differentials: a panel approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(4), pages 765-799, November.
    2. Francesco Palma & Yann Thommen, 2020. "Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters," De Economist, Springer, vol. 168(4), pages 541-575, December.
    3. Gautier, Pieter A. & Moraga-González, José L., 2018. "Search intensity, wage dispersion and the minimum wage," Labour Economics, Elsevier, vol. 50(C), pages 80-86.
    4. García Martínez, José Ramón & Sorolla, Valeri, 2019. "When is there more employment, with individual or collective wage bargaining?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-25.
    5. García Martínez, José Ramón & Sorolla i Amat, Valeri, 2017. "When is there more employment, with individual or collective wage bargaining?," Economics Discussion Papers 2017-87, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Collective bargaining; Efficiency; On-the-job search; Pay scales; Wage formation; Unions;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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