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Minimum Wages and Union Bargaining in a Dual Labour Market

By Marcus Dittrich


The paper analyses the links between a binding minimum wage and union bargaining. A dual labour market model is developed where the rst sector outcome is characterised by bargaining between unions and rms, while in the second sector rms have to pay a statutory minimum wage. It is shown that a minimum wage increase has negative employment e ects only if the bargaining outcome is described by the Nash solution. However, this result does not hold if the Kalai-Smorodinsky solution is applied to model union bargaining. A higher minimum wage can then lead to more employment in the unionised sector and to a lower unemployment rate

Topics: Minimum wages, Union bargaining, Nash approach, Kalai-Smorodinsky solution JEL Classi cation, C78, J30, J51
Year: 2007
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