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Preferences for Collective versus Individualised Wage Setting

  • Boeri, Tito

    ()

    (Bocconi University)

  • Burda, Michael C.

    ()

    (Humboldt University Berlin)

Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and collective bargaining endogenously, when workers differ by observable skill and may adopt either individualized 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 represented by employment protection (a firing tax) is necessary for such preferences to emerge. Endogenizing collective bargaining can significantly modify comparative statics effects of policy arising in a single-regime setting.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3365.

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Length: 37 pages
Date of creation: Feb 2008
Date of revision:
Publication status: published in Economic Journal, 2009, 119, 1440-1463.
Handle: RePEc:iza:izadps:dp3365
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