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Trade Unions and the Efficiency of the Natural Rate of Unemployment

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  • Pissarides, Christopher A

Abstract

Decentralized wage setting in search equilibrium models is inefficient because the meeting firm and worker ignore the dependence of job-matching probabilities on the number of firms and worker engaged in search. This paper investigates whether risk-neutral monopolistic unions will have an incentive to internalize this externality. The author finds that the externality will be internalized only if the union's policy is chosen by unemployed persons. If employed persons influence union policy, both the union wage and unemployment will be too high. A tax on the union wage, combined with an employment subsidy to firms, can correct this inefficiency. Copyright 1986 by University of Chicago Press.

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  • Pissarides, Christopher A, 1986. "Trade Unions and the Efficiency of the Natural Rate of Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(4), pages 582-595, October.
  • Handle: RePEc:ucp:jlabec:v:4:y:1986:i:4:p:582-95
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    References listed on IDEAS

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    6. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-1284, December.
    7. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
    8. Grossman, Herschel I, 1977. " Risk Shifting and Reliability in Labor Markets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(2), pages 187-209.
    9. Kahn, Charles M. & Green, Jerry, 1983. "Wage-Employment Contracts," Scholarly Articles 3203642, Harvard University Department of Economics.
    10. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 49(3), pages 315-333.
    11. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    12. John Haltiwanger, 1982. "On the Relationship Between Risk Aversion and the Development of Long Term Worker-Firm Attachments," UCLA Economics Working Papers 274, UCLA Department of Economics.
    13. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 651-666.
    14. Milton Harris & Bengt Holmstrom, 1981. "A Theory of Wage Dynamics," Discussion Papers 488, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Joanne Salop & Steven Salop, 1976. "Self-Selection and Turnover in the Labor Market," The Quarterly Journal of Economics, Oxford University Press, vol. 90(4), pages 619-627.
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    Cited by:

    1. Bruno Decreuse, 2008. "Choosy Search And The Mismatch Of Talents," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 1067-1089, August.
    2. Krusell, Per & Rudanko, Leena, 2016. "Unions in a frictional labor market," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 35-50.
    3. Bridgman, Benjamin, 2015. "Competition, work rules and productivity," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 136-149.
    4. Valeri Sorolla & José Ramón García, 2015. "When is there more employment, with individual or collective wage setting?," Working Papers 853, Barcelona Graduate School of Economics.
    5. Pol Antràs & Arnaud Costinot, 2011. "Intermediated Trade," The Quarterly Journal of Economics, Oxford University Press, pages 1319-1374.
    6. Mulder, C.B., 1989. "Efficient and inefficient institutional arrangements between governments and trade unions : An explanation of high unemployment, corporatism and union fashing," Research Memorandum FEW 375, Tilburg University, School of Economics and Management.
    7. 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.
    8. Mulder, C B, 1993. "Wage-Moderating Effects of Corporatism: Decentralized versus Centralized Wage Setting in a Union, Firm, Government Context," The Manchester School of Economic & Social Studies, University of Manchester, vol. 61(3), pages 287-301, September.
    9. Valeri Sorolla, 2014. "The Long Run Effect of Growth on Employment in a Labor Market with Matching Frictions: The Role of Labor Market Institutions," UFAE and IAE Working Papers 949.14, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 02 Feb 2015.
    10. 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).
    11. Ranjan, Priya, 2013. "Offshoring, unemployment, and wages: The role of labor market institutions," Journal of International Economics, Elsevier, vol. 89(1), pages 172-186.
    12. Delacroix, Alain, 2006. "A multisectorial matching model of unions," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 573-596, April.
    13. repec:eee:labeco:v:48:y:2017:i:c:p:1-22 is not listed on IDEAS

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