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Unions in a Frictional Labor Market

  • Per Krusell
  • Leena Rudanko

A labor market with search and matching frictions, where wage setting is controlled by a monopoly union that follows a norm of wage solidarity, is found vulnerable to substantial distortions associated with holdup. With full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, in a Markov-perfect equilibrium, hiring is too low both in the short and the long run. The quantitative impact is demonstrated in an extended model with partial union coverage and multi- period union contracting.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18218.

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Date of creation: Jul 2012
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Handle: RePEc:nbr:nberwo:18218
Note: EFG LS
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