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Unemployment and the 'Labour-Management Conspiracy'

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  • Karp, Larry
  • Paul, Thierry

Abstract

Management and a union bargain sequentially, first choosing a contract which will later determine the level of employment, and those choosing a wage. The government then chooses an output subsidy, after which the industry chooses employment according to the contract. The presence of a natural turnover rate in the unionized sector creates unemployment whenever the union wage exceeds the competitive wage. Government intervention can increase both the equilibrium amount of unemployment and worsen the intersectoral allocation of labour. Intervention can also reverse the relation between the equilibrium amount of unemployment and the flexibility of the labour market. Government intervention is especially damaging when labour markets are inflexible. Unemployment weakens, but does not eliminate, the possibility of a ‘labour-management conspiracy’.

Suggested Citation

  • Karp, Larry & Paul, Thierry, 1997. "Unemployment and the 'Labour-Management Conspiracy'," CEPR Discussion Papers 1724, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1724
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    References listed on IDEAS

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    1. Burda, Michael C & Funke, Michael, 1992. "Trade Unions, Wages and Structural Adjustment in the New German States," CEPR Discussion Papers 652, C.E.P.R. Discussion Papers.
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    3. Dani Rodrik, 1987. "Policy Targeting with Endogenous Distortions: Theory of Optimum Subsidy Revisited," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(4), pages 903-911.
    4. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
    5. David Begg & Richard Portes, 1993. "Eastern Germany since unification: wage subsidies remain a better way," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(4), pages 383-400, December.
    6. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
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    Cited by:

    1. Karp, Larry & Paul, Thierry, 1998. "Unemployment and the "Labour-Management Conspiracy"," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt4w19p9qp, Department of Agricultural & Resource Economics, UC Berkeley.

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    More about this item

    Keywords

    government subsidies; Unemployment; Wage Bargaining;
    All these keywords.

    JEL classification:

    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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