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When is there more employment, with individual or collective wage setting?

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Listed:
  • José Ramón García
  • Valeri Sorolla

Abstract

With the standard Diamond-Mortensen-Pissarides labor market with frictions we analyze when there is more employment with individual wage setting compared to collective wage setting, using a wage equation generated by the standard total surplus sharing rule. Using a Cobb-Douglas production function we find that if the bargaining power of the individual is high compared to the bargaining power of the union there is more unemployment with individual wage setting and the opposite is also true. When the individual worker and the union have the same bargaining power, if the cost of open a vacancy is high enough, there is more unemployment with individual wage setting. Finally, for a constant marginal product of labor production function AL, when the individual worker and the union have the same bargaining power, individual bargaining produces more unemployment.

Suggested Citation

  • José Ramón García & Valeri Sorolla, 2015. "When is there more employment, with individual or collective wage setting?," Working Papers 853, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:853
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    References listed on IDEAS

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    1. Ranjan, Priya, 2013. "Offshoring, unemployment, and wages: The role of labor market institutions," Journal of International Economics, Elsevier, vol. 89(1), pages 172-186.
    2. Ebell, Monique & Haefke, Christian, 2006. "Product Market Regulation and Endogenous Union Formation," IZA Discussion Papers 2222, IZA Network @ LISER.
    3. José Ramón García Martínez & Valeri Sorolla, 2013. "Frictional and Non Frictional Unemployment in Models with Matching Frictions," Working Papers. Serie AD 2013-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    4. 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.
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    Keywords

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    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
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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