Relative Consumption, Working Time, and Trade Unions

33 Pages Posted: 6 Jul 2013

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Inga Hillesheim

Berlin Chamber of Commerce and Industry

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Abstract

Status considerations with respect to consumption give rise to negative externalities because individuals do not take into account that their decisions affect the relative consumption position of others. Further, status concerns create incentives for excessive labour supply in competitive markets. We show that trade unions which are unable to internalise the externality can nevertheless mitigate the resulting distortion. The reason is that wages above the market clearing level are only feasible if people work less and, therefore, fewer hours than in a competitive market. Accordingly, the theoretical model establishes that trade unions can have a welfare-enhancing role in a world with relative consumption effects.

Keywords: externality, hours of work, relative consumption, trade union

JEL Classification: D62, J22, J51

Suggested Citation

Goerke, Laszlo and Hillesheim, Inga, Relative Consumption, Working Time, and Trade Unions. IZA Discussion Paper No. 7471, Available at SSRN: https://ssrn.com/abstract=2290469

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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Inga Hillesheim

Berlin Chamber of Commerce and Industry

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