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Agglomeration and wage bargaining

  • Kenmei Tsubota


    (Institute of Economic Research, Kyoto University)

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    This paper examines the role of trade union and the type of wage bargainings in economic geography model. In our setting, wage bargaining is held between immobile workers and mobile entrepreneurs who decide the location of their firm. It is shown that stronger trade unions in both regions would put a stronger pressure toward agglomeration of firms. This is due to the fact that the stronger bargaining power of trade union makes home market effect larger. Under core-periphery distribution of firms, this effect can act the role as anchorage of firms. Stronger trade unions in home region can keep the firms remain in their region. Moreover, we extend to several employment environments, which are the outside option of workers. We show that differences in bargaining structures and employment environments could affect the stability of symmetrically distributed firms, namely symmetry break point. We show that while unemployment rate acts as a centripetal force, not only the degree of bargaining power of trade union but also unemployment benefit can play as a centrifugal force. A key message of the paper is that generous unemployment benefit and higher trade union make the distribution of firms more uneven and sustainable.

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    Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 675.

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    Length: 30pages
    Date of creation: Jun 2009
    Date of revision:
    Handle: RePEc:kyo:wpaper:675
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    1. Charlot, Sylvie & Gaigné, Carl & Robert-Nicoud, Frédéric & Thisse, Jacques-François, 2004. "Agglomeration and Welfare: The Core-Periphery Model in the Light of Bentham, Kaldor and Rawls," CEPR Discussion Papers 4715, C.E.P.R. Discussion Papers.
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    4. Henry G. Overman & Diego Puga, 2002. "Unemployment clusters across Europe's regions and countries," Economic Policy, CEPR;CES;MSH, vol. 17(34), pages 115-148, 04.
    5. Picard, Pierre M & Toulemonde, Eric, 2002. "Firms Agglomeration and Unions," CEPR Discussion Papers 3323, C.E.P.R. Discussion Papers.
    6. Arjan Lejour & Harrie Verbon, 1996. "Capital mobility, wage bargaining, and social insurance policies in an economic union," International Tax and Public Finance, Springer, vol. 3(4), pages 495-513, October.
    7. repec:tpr:qjecon:v:100:y:1985:i:1:p:57-79 is not listed on IDEAS
    8. Decressin, Jörg & Fatás, Antonio, 1994. "Regional Labour Market Dynamics in Europe," CEPR Discussion Papers 1085, C.E.P.R. Discussion Papers.
    9. Rikard Forslid & Gianmarco I.P. Ottaviano, 2003. "An analytically solvable core-periphery model," Journal of Economic Geography, Oxford University Press, vol. 3(3), pages 229-240, July.
    10. Tani, Massimiliano, 2003. "Have Europeans become more mobile? A note on regional evolutions in the EU: 1988-1997," Economics Letters, Elsevier, vol. 80(1), pages 23-30, July.
    11. Anna Maria Ferragina & Francesco Pastore, 2008. "Mind The Gap: Unemployment In The New Eu Regions," Journal of Economic Surveys, Wiley Blackwell, vol. 22(1), pages 73-113, 02.
    12. J. Paul Elhorst, 2003. "The Mystery of Regional Unemployment Differentials: Theoretical and Empirical Explanations," Journal of Economic Surveys, Wiley Blackwell, vol. 17(5), pages 709-748, December.
    13. Jakob Roland Munch, 2003. "The Location of Firms in Unionized Countries," Scandinavian Journal of Economics, Wiley Blackwell, vol. 105(1), pages 49-72, 03.
    14. Gerda Dewit & Holger Görg & Catia Montagna, 2009. "Should I stay or should I go? Foreign direct investment, employment protection and domestic anchorage," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 145(1), pages 93-110, April.
    15. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
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