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Subsidies on Labour and Capital under Wage Bargaining
Author(s) -
Osstbye Stein
Publication year - 1996
Publication title -
labour
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.403
H-Index - 34
eISSN - 1467-9914
pISSN - 1121-7081
DOI - 10.1111/j.1467-9914.1996.tb00092.x
Subject(s) - subsidy , economics , labour economics , wage , investment (military) , wage bargaining , capital (architecture) , wage rate , market economy , archaeology , politics , political science , law , history
Micro‐policy instruments are often grouped into labour subsidies and capital subsidies. The purpose of this paper is to investigate the effect on employment of labour and capital subsidies when the wage rate is endogeneous. The problem is studied within a sequential three‐stage model, integrating the investment decision, wage‐bargaining and the employment decision. The paper demonstrates that labour subsidies may fail, depending on technology and the risk aversion of the workers.