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Minimum Wages and Union Bargaining in a Dual Labour Market

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  • Dittrich, Marcus

Abstract

The paper analyses the links between a binding minimum wage and union bargaining. A dual labour market model is developed where 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. It is shown that a minimum wage increase has negative employment effects only if the bargaining outcome is described by the Nash solution. However, this result does not hold if the Kalai-Smorodinsky solution is applied to model union bargaining. A higher minimum wage can then lead to more employment in the unionised sector and to a lower unemployment rate.

Suggested Citation

  • Dittrich, Marcus, 2007. "Minimum Wages and Union Bargaining in a Dual Labour Market," Dresden Discussion Paper Series in Economics 13/07, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    • Handle: RePEc:zbw:tuddps:1307
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    More about this item

    Keywords

    Minimum wages; union bargaining; Nash approach; Kalai-Smorodinsky solution;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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