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The Political Economy of Collective Bargaining

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  • Tapio Palokangas

Abstract

We construct a political equilibrium in which employers and labour unions bargain over labour contracts, wage-earners and profit-earners lobby the government for taxation and labour market regulation, and labour market legislation must be accepted by the majority of voters. We show that the voters rule out profit sharing, because otherwise the government would capture all the gain. Furthermore, if it is much easier to tax wages than profits, then the government protects union power by regulation in the labour market. In such a case, the political equilibrium is characterized by strong union power and right-to-manage bargaining, which causes involuntary unemployment.

Suggested Citation

  • Tapio Palokangas, 2002. "The Political Economy of Collective Bargaining," CESifo Working Paper Series 719, CESifo.
    • Handle: RePEc:ces:ceswps:_719
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    References listed on IDEAS

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    1. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    2. Gene M. Grossman (ed.), 1996. "Economic Growth," Books, Edward Elgar Publishing, volume 0, number 553.
    3. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    4. Palokangas, Tapio, 2003. "The political economy of collective bargaining," Labour Economics, Elsevier, vol. 10(2), pages 253-264, April.
    5. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    6. Dixit, Avinash & Grossman, Gene M & Helpman, Elhanan, 1997. "Common Agency and Coordination: General Theory and Application to Government Policy Making," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 752-769, August.
    7. Palokangas,Tapio, 2010. "Labour Unions, Public Policy and Economic Growth," Cambridge Books, Cambridge University Press, number 9780521144056, September.
    8. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
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    Cited by:

    1. Lukach, R. & Plasmans, J.E.J., 2002. "Measuring Knowledge Spillovers using Patent Citations : Evidence from the Belgian Firm's Data," Other publications TiSEM d78bf59a-e0ff-4451-86b9-1, Tilburg University, School of Economics and Management.
    2. Tapio Palokangas, 2008. "Self-Interested Governments, Unionization, and Legal and Illegal Immigration," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 2(1), pages 007-020, March.
    3. Palokangas, Tapio K., 2014. "The Political Economy of Labor Market Regulation with R&D," IZA Discussion Papers 8147, Institute of Labor Economics (IZA).
    4. Palokangas, Tapio K., 2003. "Foreign Direct Investment, Labour Market Regulation and Self-Interested Governments," IZA Discussion Papers 793, Institute of Labor Economics (IZA).
    5. Tapio Palokangas, 2004. "Union–Firm Bargaining, Productivity Improvement and Endogenous Growth," LABOUR, CEIS, vol. 18(2), pages 191-205, June.
    6. Tapio Palokangas, 2004. "Integration, Wage Bargaining, and Growth with Creative Destruction," DEGIT Conference Papers c009_015, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. Giovanni Di Bartolomeo, 2014. "Optimal Degree of Union Centralization," Studies in Microeconomics, , vol. 2(2), pages 201-211, December.
    8. Palokangas, Tapio, 2003. "The political economy of collective bargaining," Labour Economics, Elsevier, vol. 10(2), pages 253-264, April.
    9. Michele Santoni, 2017. "Protective Excise Taxation," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 421-445, December.
    10. Palokangas, Tapio K., 2015. "The Welfare Effects of Globalization with Labor Market Regulation," IZA Discussion Papers 9412, Institute of Labor Economics (IZA).
    11. Tapio Palokangas, 2009. "Investment, expropriation, and unionization," Economics of Governance, Springer, vol. 10(1), pages 27-42, January.

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