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Wage bargaining as an optimal control problem: A dynamic version of the right‐to‐manage model
Author(s) -
Guerrazzi Marco
Publication year - 2010
Publication title -
optimal control applications and methods
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 44
eISSN - 1099-1514
pISSN - 0143-2087
DOI - 10.1002/oca.966
Subject(s) - presumption , wage , negotiation , economics , wage bargaining , microeconomics , control (management) , collective bargaining , labour economics , stock (firearms) , law , engineering , mechanical engineering , management , political science
This paper aims at representing wage bargaining as an optimal control problem. Specifically, assuming that employment follows a stock‐adjustment principle towards the stochastic level that maximizes entrepreneurs' profits, I builds an inter‐temporal optimizing model in which the real wage is continuously set by an infinitely‐lived arbitrator called in to solve the dispute between workers and employers. This theoretical proposal verifies the natural presumption about real‐wage bargaining and suggests that unions are far from having a destabilizing role but, on the contrary, they may well speed up the adjustment to equilibrium. Moreover, I show that when unions do not care about unemployed workers, static bargaining models understate wage negotiation distortions. Copyright © 2010 John Wiley & Sons, Ltd.