Working Paper: CEPR ID: DP114
Authors: Assar Lindbeck; Dennis J. Snower
Abstract: The paper analyzes how the influence of labour unions over wage contracts may make an economy less "resilient". Loss of resilience is depicted in two conceptually independent ways: (i) the tendency of exogenous variations in unemployment to become perpetuated and (ii) the possibility that such swings may give rise to a wage-unemployment ratchet. In this manner, the analysis attempts to provide an explanation of why unemployment rates in Europe and the United States have displayed an upward trend over the past fifteen years and why the United States recovered much more speedily from the recession of the early 1980s than did most European economies.
Keywords: union activity; unemployment; wage-unemployment movements; economic resilience; insider-outsider analysis
JEL Codes: 023; 026; 131; 821; 831; 832
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| union power (J51) | unemployment persistence (J64) |
| adverse shock (F35) | unemployment persistence (J64) |
| unemployment persistence (J64) | higher wages (J39) |
| higher wages (J39) | discouraged hiring (J79) |
| discouraged hiring (J79) | unemployment persistence (J64) |
| positive employment changes (J68) | smaller wage increases (J31) |
| smaller wage increases (J31) | upward trend in wages (J31) |
| smaller wage increases (J31) | upward trend in unemployment (J64) |
| greater bargaining power of unions (J50) | larger wage increases during downturns (J31) |
| larger wage increases during downturns (J31) | exacerbated unemployment persistence (J64) |