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Wage–Setting Institutions, Unemployment, and Voters’ Demand for Redistribution Policy

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  • Robert A. J. Dur

Abstract

This paper examines unemployment, wages, and voters’ demand for redistribution policy under three different labour market structures: laissez–faire, wage–setting by company or industrial unions, and wage–setting by a central union. Decisions on the level of taxes and benefits are made by majority rule. Taxes, wages, and unemployment are lowest under competitive wage–setting and highest with decentralised unions. A higher degree of centralisation of union wage–setting implies lower unemployment and taxes because a fiscal externality is internalised. Under some conditions about the composition of the population, the political–economic equilibrium can further be improved upon by cooperation between the government and the central union. This seems to have happened in the Netherlands where the unions and the government agreed to cut taxes and restrain wages, which has led to the ‘Dutch Miracle’.

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  • Robert A. J. Dur, 2001. "Wage–Setting Institutions, Unemployment, and Voters’ Demand for Redistribution Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(5), pages 517-531, November.
    • Handle: RePEc:bla:scotjp:v:48:y:2001:i:5:p:517-531
    DOI: 10.1111/1467-9485.00212
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    Cited by:

    1. Laszlo Goerke & Markus Pannenberg & Heinrich Ursprung, 2010. "A positive theory of the earnings relationship of unemployment benefits," Public Choice, Springer, vol. 145(1), pages 137-163, October.
    2. Lex Borghans & Ben Kriechel, 2009. "Wage Structure and Labor Mobility in The Netherlands, 1999-2003," NBER Chapters, in: The Structure of Wages: An International Comparison, pages 125-148, National Bureau of Economic Research, Inc.

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