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Spillover Effects of Minimum Wagesunder Union Wage Bargaining


  • Marcus Dittrich
  • Andreas Knabe


Empirical and experimental research suggests that minimum wages cause spillovers to wages higher up in the wage distribution, i.e., they may even raise wages that were already above the new minimum wage. In this paper, we analyze how these findings can be explained by theoretical wage bargaining models between unions and firms. While the Nash bargaining solution is unaffected by minimum wages below initially bargained wages, we show that such minimum wages can drive up wages --- and be harmful to employment --- when bargaining follows the Kalai---Smorodinsky solution.

Suggested Citation

  • Marcus Dittrich & Andreas Knabe, 2013. "Spillover Effects of Minimum Wagesunder Union Wage Bargaining," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(3), pages 506-518, September.
  • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201309)169:3_506:seomwu_2.0.tx_2-z
    DOI: 10.1628/093245613X667468

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    References listed on IDEAS

    1. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer.
    2. George A. Akerlof, 1982. "Labor Contracts as Partial Gift Exchange," The Quarterly Journal of Economics, Oxford University Press, vol. 97(4), pages 543-569.
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    Cited by:

    1. 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

    JEL classification:

    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J52 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Dispute Resolution: Strikes, Arbitration, and Mediation


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