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Unemployment and the 'Labour-Management Conspiracy'


  • Karp, Larry
  • Paul, Thierry


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

    1. Karp, Larry & Paul, Thierry, 2000. "Unemployment and the 'Labour-Management Conspiracy.'," Economic Journal, Royal Economic Society, vol. 110(460), pages 113-135, January.
    2. Bean, Charles R, 1994. "European Unemployment: A Survey," Journal of Economic Literature, American Economic Association, vol. 32(2), pages 573-619, June.
    3. Rodrik, Dani, 1986. "Tariffs, subsidies, and welfare with endogenous policy," Journal of International Economics, Elsevier, vol. 21(3-4), pages 285-299, November.
    4. Michael Burda & Michael Funke, 1992. "Trade Unions, Wages and Structural Adjustment in the New German States," CESifo Working Paper Series 15, CESifo Group Munich.
    5. Kiminori Matsuyama, 1990. "Export Subsidies as an Outcome of the Management-Labor Conspiracy," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 803-813.
    6. 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.
    7. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
    8. 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.
    9. Dani Rodrik, 1987. "Policy Targeting with Endogenous Distortions: Theory of Optimum Subsidy Revisited," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 903-911.
    10. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    11. 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.
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    1. Karp, Larry & Paul, Thierry, 2000. "Unemployment and the 'Labour-Management Conspiracy.'," Economic Journal, Royal Economic Society, vol. 110(460), pages 113-135, January.

    More about this item


    government subsidies; Unemployment; Wage Bargaining;

    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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