The Kalai-Smorodinsky Solution in Labor-Market Negotiations
University of Duisburg-Essen - Mercator School of Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
University of Hamburg
CESifo Working Paper Series No. 941
Authors who consider efficient bargaining on the labor market predominantly focus on the Nash-bargaining solution. It seems, however, that actual labor market negotiations between an employers' federation and a labor union are often characterized by mutual concessions, which may be accounted for by an application of the Kalai-Smorodinsky solution to labor-market negotiations. Correspondingly, we investigate how a government can influence the equilibrium on the labor market by changing the reservation wage when the equilibrium is determined by the Kalai-Smorodinsky solution. We find that the induced employment effects may differ substantially when compared with the Nash bargaining solution. Hence, substituting the Kalai-Smorodinsky by the Nash bargaining solution is not innocuous, when actual negotiations are characterized by mutual incremental concessions.
Number of Pages in PDF File: 30
Keywords: Labor Market Negotiations, Kalai-Smorodinsky Solution, Nash-bargaining Solution, Reservation Wage, Fiscal and Social Policies
JEL Classification: C78, H39, H55, J40, J51working papers series
Date posted: June 11, 2003
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