Minimum Wages and Union Bargaining in a Dual Labour Market
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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97-13, University of Copenhagen. Department of Economics.
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060708, University of California-Irvine, Department of Economics, revised Jan 2007.
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