Two-Stage Bargaining with Coverage Extension in a Dual Labour Market
This paper studies two-stage bargaining in a simple general equilibrium model with a dual labour market. We analyse the case where agreements reached at the central level in the unionized sector extend beyond this sector, which seems to be a characteristic feature of continental European labour markets. Conditions are identified under which firms and unions have a commonality of interest in extending coverage of a minimum wage to the non-unionized sector of the economy. In many countries, labour markets comprise a primary sector with high non-market clearing wages and job queues, and a secondary sector with market clearing. The latter arises endogenously in our model: it is optimal for the unionized sector to impose a market clearing wage on the non-unionized sector. This suggests that coverage extension can increase welfare.
|Date of creation:||Nov 1997|
|Date of revision:|
|Publication status:||Published in: European Economic Review 44(1) 2000, 181-200|
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