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Minimum Wages and Union Bargaining in a Dual Labour Market

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  • Dittrich, Marcus

Abstract

The paper analyses the links between a binding minimum wage and union bargaining. A dual labour market model is developed where the first sector outcome is characterised by bargaining between unions and firms, while in the second sector firms have to pay a statutory minimum wage. It is shown that a minimum wage increase has negative employment effects only if the bargaining outcome is described by the Nash solution. However, this result does not hold if the Kalai-Smorodinsky solution is applied to model union bargaining. A higher minimum wage can then lead to more employment in the unionised sector and to a lower unemployment rate.

Suggested Citation

  • Dittrich, Marcus, 2007. "Minimum Wages and Union Bargaining in a Dual Labour Market," Dresden Discussion Paper Series in Economics 13/07, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
  • Handle: RePEc:zbw:tuddps:1307
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    References listed on IDEAS

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    1. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," NBER Working Papers 12663, National Bureau of Economic Research, Inc.
    2. Pedro Portugal & Ana Rute Cardoso, 2006. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 988-1013, September.
    3. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398, November.
    4. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    5. Dubra, Juan, 2001. "An asymmetric Kalai-Smorodinsky solution," Economics Letters, Elsevier, vol. 73(2), pages 131-136, November.
    6. Christopher J. Flinn, 2006. "Minimum Wage Effects on Labor Market Outcomes under Search, Matching, and Endogenous Contact Rates," Econometrica, Econometric Society, vol. 74(4), pages 1013-1062, July.
    7. Cahuc, P. & Saint-Martin, A. & Zylberberg, A., 2001. "The consequences of the minimum wage when other wages are bargained over," European Economic Review, Elsevier, vol. 45(2), pages 337-352, February.
    8. Roberts, Mark A. & Staehr, Karsten & Tranaes, Torben, 2000. "Two-stage bargaining with coverage extension in a dual labour market," European Economic Review, Elsevier, pages 181-200.
    9. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    10. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, pages 245-255.
    11. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
    12. Masters, Adrian M, 1999. "Wage Posting in Two-Sided Search and the Minimum Wage," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 809-826, November.
    13. Daniel Cardona & Fernando Sánchez-Losada, 2006. "Unions, qualification choice, and output," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 50-76, January.
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    More about this item

    Keywords

    Minimum wages; union bargaining; Nash approach; Kalai-Smorodinsky solution;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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