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Preferences for Collective Versus Individualised Wage Setting

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  • Tito Boeri
  • Michael C. Burda

Abstract

Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This article models wage rigidity and the coverage of collective bargaining endogenously, when workers differ by observable skill and may adopt either individualised or collective wage bargaining. In the calibrated model, a substantial fraction of workers and firms as well as the median voter prefer collective bargaining to the decentralised regime. A fundamental distortion of the separation decision in the form of a firing tax is necessary for these preferences to emerge. Endogenous coverage of collective bargaining can significantly modify the model's comparative statics predictions.

Suggested Citation

  • Tito Boeri & Michael C. Burda, 2009. "Preferences for Collective Versus Individualised Wage Setting," Economic Journal, Royal Economic Society, vol. 119(540), pages 1440-1463, October.
    • Handle: RePEc:wly:econjl:v:119:y:2009:i:540:p:1440-1463
    DOI: 10.1111/j.1468-0297.2009.02286.x
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    More about this item

    JEL classification:

    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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