IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Efficient Wage Bargaining in a Dynamic Macroeconomic Model

  • Volker Böhm

    (Bielefeld University)

  • Oliver Claas

    (Institute of Mathematical Economics, Bielefeld University)

Registered author(s):

    This paper analyzes the implications of bilateral bargaining over wages and employment between a producer and a union representing a finite number of identical workers in a monetary macroeconomic model of the AS--AD type with government activity. Wages and aggregate employment levels are set according to an efficient (Nash) bargaining agreement while the commodity market is cleared in a competitive way. It is shown that, for each level of union power, measured by the share it obtains of the total production surplus, efficient bargaining implies no efficiency loss in production. Depending on the level of union power, temporary equilibria may exhibit voluntary overemployment or underemployment with the competitive equilibrium being a special case. Due to the price feedback from the commodity market and to income-induced demand effects, all temporary equilibria with a positive labor share are not Nash bargaining-efficient with respect to the set of feasible temporary equilibrium allocations. While higher union power induces a larger share of the surplus and a higher real wage, it always implies lower output and employment. Moreover, the induced nominal equilibrium wage is not always a monotonically increasing function of union power. Therefore, all temporary equilibria with efficient bargaining are only ``Second-best'' Pareto optimal, i.\,e.\ bargaining power and production efficiency do not lead to temporary optimality. The dynamic evolution of money balances, prices, and wages is analyzed being driven primarily by government budget deficits and expectations by consumers. It is shown that for each fixed level of union power, the features of the dynamics under perfect foresight are structurally identical to those of the same economy under competitive wage and price setting. These are: stationary equilibria with perfect foresight do not exist, except on a set of parameters of measure zero; balanced paths of monetary expansion or contraction are the only possibilities inducing constant allocations; for small levels of government demand, there exist two balanced paths generically, one of which with high employment and production is always unstable, while the other one may be stable or unstable.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-465.pdf
    File Function: First version, 2012
    Download Restriction: no

    Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 465.

    as
    in new window

    Length: 54 pages
    Date of creation: Mar 2012
    Date of revision:
    Handle: RePEc:bie:wpaper:465
    Contact details of provider: Postal: Postfach 10 01 31, 33501 Bielefeld
    Phone: +49(0)521-106-4907
    Web page: http://www.imw.uni-bielefeld.de/

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bie:wpaper:465. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Frederik Herzberg)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.