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Trade Unions, Non-Binding Wage Agreements, and Capital Accumulation

Author

Listed:
  • Michael B. Devereux
  • Ben Lockwood

Abstract

This paper provides a counterexample to some recent results of Grout (1984) which state that in a bargaining situation without binding wage agreements, the capital stock will be biased downwards. In a general equilibrium setting, this result may be reversed. The argument is built around a simple Diamond-type overlapping generations model where the young work and old own both capital and shares in firms. A move from binding to non-binding wage contracts may increase the capital stock in this environment. A rise in trade-union power will generally increase the capital stock and reduce the speed of the economy's adjustment.

Suggested Citation

  • Michael B. Devereux & Ben Lockwood, 1989. "Trade Unions, Non-Binding Wage Agreements, and Capital Accumulation," Working Paper 743, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:743
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    Keywords

    trade unions ; wages ; economic equilibrium ; enterprises ; labour;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables

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