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Minimum Wages and Union Bargaining in a Dual Labour Market

  • Dittrich, Marcus

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.

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Paper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 13/07.

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Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:tuddps:1307
Contact details of provider: Postal: 01062 Dresden
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  1. Mark A. Roberts & Karsten Stæhr & Torben Tranæs, 1997. "Two-Stage Bargaining with Coverage Extension in a Dual Labour Market," Discussion Papers 97-13, University of Copenhagen. Department of Economics.
  2. 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, 07.
  3. repec:att:wimass:9512 is not listed on IDEAS
  4. David Neumark & William Wascher, 2006. "Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research," Working Papers 060708, University of California-Irvine, Department of Economics, revised Jan 2007.
  5. Adrian M. Masters, . "Wage Posting in Two-sided Search and the Minimum Wage," Economics Discussion Papers 457, University of Essex, Department of Economics.
  6. John Kennan, 1995. "The Elusive Effects of Minimum Wages," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1950-1965, December.
  7. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  8. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  9. 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.
  10. Dubra, J.M., 1998. "An Asymmetric Kalai-Smorodinsky Solution," Working Papers 98-09, C.V. Starr Center for Applied Economics, New York University.
  11. Portugal, Pedro & Cardoso, Ana Rute, 2002. "Disentangling the Minimum Wage Puzzle: An Analysis of Worker Accessions and Separations," IZA Discussion Papers 544, Institute for the Study of Labor (IZA).
  12. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, vol. 56(2), pages 245-255, February.
  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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