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Cyclicality of wages and union power

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  • Morin, Annaïg

Abstract

This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared between the worker and the firm. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I show that under collective wage bargaining, the worker share is endogenous and counter-cyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus, and this mechanism delivers endogenous wage rigidity. The model thus offers new insights into two business cycle features: the union wage premium fluctuates counter-cyclically, and employment is more cyclical but less persistent when wages are collectively bargained.

Suggested Citation

  • Morin, Annaïg, 2017. "Cyclicality of wages and union power," Labour Economics, Elsevier, vol. 48(C), pages 1-22.
    • Handle: RePEc:eee:labeco:v:48:y:2017:i:c:p:1-22
    DOI: 10.1016/j.labeco.2017.06.001
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    3. Klein, Mathias & Winkler, Roland, 2019. "Austerity, inequality, and private debt overhang," European Journal of Political Economy, Elsevier, vol. 57(C), pages 89-106.
    4. Thommen, Yann, 2022. "Reforms of collective bargaining institutions in European Union countries: Bad timing, bad outcomes?," European Journal of Political Economy, Elsevier, vol. 71(C).
    5. Arnd Kölling, 2022. "Shortage of Skilled Labor, Unions and the Wage Premium: A Regression Analysis with Establishment Panel Data for Germany," Journal of Labor Research, Springer, vol. 43(2), pages 239-259, June.
    6. Marczak, Martyna & Beissinger, Thomas & Brall, Franziska, 2022. "Technical change, task allocation, and labor unions," Hohenheim Discussion Papers in Business, Economics and Social Sciences 05-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    7. García Martínez, José Ramón & Sorolla, Valeri, 2019. "When is there more employment, with individual or collective wage bargaining?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-25.

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