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Nominal versus real wage rigidity in a monopoly union: A synthesis

  • Ching-Chong Lai
  • Juin-Jen Chang

Based upon a monopoly union model, this paper addresses how the degree of money illusion of the union member and the indexation rule of unemployment benefits are interdependent in governing the possibility of either nominal or real wage rigidity. Two main findings emerge from the analysis. First, nominal wage rigidity is present unless union members are characterized by complete money illusion and the government does not adjust its nominal unemployment payments. Second, real wage rigidity holds if union members are free of money illusion and nominal unemployment benefits are fully indexed to either union-set wages or the product price. Copyright International Atlantic Economic Society 2002

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File URL: http://hdl.handle.net/10.1007/BF02299147
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Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

Volume (Year): 30 (2002)
Issue (Month): 1 (March)
Pages: 61-73

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Handle: RePEc:kap:atlecj:v:30:y:2002:i:1:p:61-73
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  1. Calmfors, Lars & Horn, Henrik, 1985. " Classical Unemployment, Accommodation Policies and Adjustment of Real Wages," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 234-61.
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  9. Branson, William H & Klevorick, Alvin K, 1969. "Money Illusion and the Aggregate Consumption Function," American Economic Review, American Economic Association, vol. 59(5), pages 832-49, December.
  10. Dennis J. Snower, 1996. "Unemployment Benefits: An Assessment of Proposals for Reform," Archive Discussion Papers 9601, Birkbeck, Department of Economics, Mathematics & Statistics.
  11. Craig, George D, 1974. "Money Illusion and the Aggregate Consumption Function: Note," American Economic Review, American Economic Association, vol. 64(1), pages 195-99, March.
  12. Yip, Chong K., 1988. "The employment effects of tariffs in an efficient bargain model," Journal of Macroeconomics, Elsevier, vol. 10(3), pages 477-485.
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  14. Benassy, Jean-Pascal, 1995. "Nominal Rigidities in Wage Setting by Rational Trade Unions," Economic Journal, Royal Economic Society, vol. 105(430), pages 635-43, May.
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