Working Paper: NBER ID: w18218
Authors: Per Krusell; Leena Rudanko
Abstract: A labor market with search and matching frictions, where wage setting is controlled by a monopoly union that follows a norm of wage solidarity, is found vulnerable to substantial distortions associated with holdup. With full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, in a Markov-perfect equilibrium, hiring is too low both in the short and the long run. The quantitative impact is demonstrated in an extended model with partial union coverage and multi- period union contracting.
Keywords: Labor Market; Unions; Wage Setting; Unemployment; Economic Activity
JEL Codes: E02; E24; J51; J64
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monopoly union (L12) | wages (J31) |
| monopoly union (L12) | unemployment (J64) |
| monopoly union (L12) | output (C67) |
| commitment to future wages (J31) | hiring efficiency (M51) |
| lack of commitment to future wages (J31) | hiring inefficiency (J63) |
| multiperiod union contracts (J50) | wage stickiness (J31) |
| wage stickiness (J31) | employment dynamics (J63) |