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Welfare Effects of Local versus Central Wage Bargaining
Author(s) -
Dittrich Marcus
Publication year - 2010
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.1467-9914.2010.00469.x
Subject(s) - economics , welfare , wage , labour economics , wage bargaining , social welfare , market economy , political science , law
The paper analyses the welfare effects of union bargaining (de)centralization in a dual labour market with a unionized and a competitive sector. We show that social welfare depends on both the structure of the union's objective function and the elasticities of labour demand in both sectors. The welfare‐maximizing employment allocation can be obtained under a high degree of centralization if the union maximizes the total wage‐bill. Otherwise, if the union is rent maximizing, welfare is higher under local bargaining. However, in that case neither central nor local wage setting yields the social optimum.