A Reverse Holdup Problem: When Workers’ Lack of Bargaining Power Slows Economic Adjustments

21 Pages Posted: 17 May 2013

See all articles by Antonio Estache

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Renaud Foucart

University of Oxford

Date Written: May 2013

Abstract

In a model of horizontal matching on the labor market, we show that increasing workers’ bargaining power may increase some employers’ incentive to switch to new production activities. In particular, this could lead to (i) higher wages, (ii) more jobs, (iii) better jobs and (iv) higher profits. Paradoxically, the median voter may object to the economic adjustments because search costs could cut the surplus for a majority of workers, even when it creates jobs for the other ones and increases aggregate surplus.

JEL Classification: C78, J3, J6

Suggested Citation

Estache, Antonio and Foucart, Renaud, A Reverse Holdup Problem: When Workers’ Lack of Bargaining Power Slows Economic Adjustments (May 2013). CEPR Discussion Paper No. DP9475. Available at SSRN: https://ssrn.com/abstract=2266287

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Renaud Foucart

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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