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Preferences for Collective versus Individualised Wage Setting

Author

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  • Boeri, Tito

    (Bocconi University)

  • Burda, Michael C.

    (Humboldt University Berlin)

Abstract

Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and collective bargaining endogenously, when workers differ by observable skill and may adopt either individualized or collective wage bargaining. In the calibrated model, a substantial fraction of workers and firms as well as the median voter prefer collective bargaining to the decentralised regime. A fundamental distortion of the separation decision represented by employment protection (a firing tax) is necessary for such preferences to emerge. Endogenizing collective bargaining can significantly modify comparative statics effects of policy arising in a single-regime setting.

Suggested Citation

  • Boeri, Tito & Burda, Michael C., 2008. "Preferences for Collective versus Individualised Wage Setting," IZA Discussion Papers 3365, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3365
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    More about this item

    Keywords

    wage rigidity; employment protection; equilibrium unemployment;
    All these keywords.

    JEL classification:

    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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