Welfare Effects of Local Versus Central Wage Bargaining

9 Pages Posted: 15 Feb 2010

See all articles by Marcus Dittrich

Marcus Dittrich

Deggendorf Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute)

Abstract

The paper analyses the welfare effects of union bargaining (de)centralization in a dual labour market with a unionized and a competitive sector. We show that social welfare depends on both the structure of the union's objective function and the elasticities of labour demand in both sectors. The welfare-maximizing employment allocation can be obtained under a high degree of centralization if the union maximizes the total wage-bill. Otherwise, if the union is rent maximizing, welfare is higher under local bargaining. However, in that case neither central nor local wage setting yields the social optimum.

Suggested Citation

Dittrich, Marcus, Welfare Effects of Local Versus Central Wage Bargaining. LABOUR, Vol. 24, Issue 1, pp. 26-34, March 2010. Available at SSRN: https://ssrn.com/abstract=1551546 or http://dx.doi.org/10.1111/j.1467-9914.2010.00469.x

Marcus Dittrich (Contact Author)

Deggendorf Institute of Technology ( email )

Edlmairstraße 6 und 8
Deggendorf, Bavaria 94469
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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