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Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach

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  • Marcus Dittrich

    (Chemnitz University of Technology, Faculty of Economics and Business Administration)

Abstract

This paper aims at contributing to the labour market effects of minimum wages and unemployment benefits from a game-theoretic viewpoint. In a dual labour market model, 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. The model shows that the effects of minimum wages differ from those of unemployment benefits. Moreover, we show that the labour market outcome depends on the underlying game-theoretic bargaining solution. That is, the labour market effects of unemployment benefits and minimum wages in the Nash bargaining solution differ substantially from the effects if bargaining follows the Kalai-Smorodinsky solution.

Suggested Citation

  • Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
    • Handle: RePEc:cuf:journl:y:2010:v:11:i:2:p:209-229
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Pandelis Mitsis, 2015. "Effects of Minimum Wages on Total Employment: Evidence from Cyprus," Journal of Labor Research, Springer, vol. 36(3), pages 318-345, September.
    2. Qi Feng & Yuanchen Li & J. George Shanthikumar, 2022. "Negotiations in Competing Supply Chains: The Kalai-Smorodinsky Bargaining Solution," Management Science, INFORMS, vol. 68(8), pages 5868-5890, August.
    3. l'Haridon, Olivier & Malherbet, Franck & Pérez-Duarte, Sébastien, 2013. "Does bargaining matter in the small firms matching model?," Labour Economics, Elsevier, vol. 21(C), pages 42-58.
    4. Dittrich, Marcus & Städter, Silvio, 2015. "Moral hazard and bargaining over incentive contracts," Research in Economics, Elsevier, vol. 69(1), pages 75-85.
    5. Claus‐Jochen Haake & Thorsten Upmann & Papatya Duman, 2023. "Wage bargaining and employment revisited: separability and efficiency in collective bargaining," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(2), pages 403-440, April.
    6. Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2019. "The Decomposability of the Nash Bargaining Solution in Labor Markets," Working Papers CIE 128, Paderborn University, CIE Center for International Economics.
    7. Pandelis Mitsis, 2019. "The Impact of the Minimum Wage on Wages and Work in Cyprus," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 13(2), pages 72-101, December.

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    More about this item

    Keywords

    Nash solution; Kalai-Smoro-dinsky solution; Union bargaining; Minimum wages; Unemployment benefits;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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