Timing is Everything - The Labour Market Effects of Union Wage Bargaining

This paper analyses the labour market effects of union wage bargaining for different sequences of the employment choice and the wage bargain. The result that collective bargaining decreases (firm-level) employment in a right-to-manage setting hinges on the assumption that employment is chosen by the firm after the wage bargain ("ex-ante" bargaining). Turning this sequence upside down ("ex-post" bargaining), the firm uses employment choice as a strategic variable for the wage bargain. Employment will be equal to the competitive case and wages will be higher. Although we strictly assume right-to-manage, the timing of the bargain ensures an efficient contract.right-to-manage

The Impact of a Unionised Labour Market in a Schumpeterian Growth Model

This paper extends the seminal creative destruction growth model of Aghion/Howitt (1992) to investigate the relationship between unemployment and growth. We distinguish low-skilled and high-skilled labour and assume that a union bargains over the low-skilled labour wage. This causes unemployment, but the growth e ect is ambiguous. On the one hand the higher wage will squeeze expected pro ts of innovators, which is bad for growth. On the other hand the union a ects the marginal product of high-skilled labour and hence the high-skilled wage in the manufacturing sector declines. This causes a "migration" of high-skilled labour from the manufacturing into the research sector. This e ect is growth enhancing. We show that the overall e ect depends crucially on the elasticity of substitution between high-skilled and low-skilled labour. With an elasticity less than one the "good" growth e ect dominates the bad, and vice versa. In the Cobb Douglas case the two e ects cancel out.Labour Unions, Unemployment, Growth, R&D

Smoking Bans in the Presence of Social Interaction

This paper analyzes the welfare effects of a public smoking ban in bars. We construct a model that captures crucial features of bar life: competing bars, social interaction, and heterogenous preferences for a smoking ban. Smokers and non-smokers simultaneously choose a bar given their preferences for meeting other people. Bars anticipate the behavior of individuals and choose the smoking regime strategically. Since the (dis)utility from smoking and social interaction are substitutes, the smoking regime is a stronger coordination device if the disutility from smoking is large. If all bars allow smoking in equilibrium, a public smoking ban enhances welfare

Individual vs. Collective Bargaining in the Large Firm Search Model

We analyze the welfare and employment effects of different wage bargaining regimes. Within the large firm search model, we show that collective bargaining affects employment via two channels. Collective bargaining exerts opposing effects on job creation and wage setting. Firms have a stronger incentive for strategic employment, while workers benefit from the threat of a strike. We find that the employment increase due to the strategic motive is dominated by the employment decrease due to the increase in workers' threat point. In aggregate equilibrium, employment is ineciently low under collective bargaining. But it is not always true that equilibrium wages exceed those under individual bargaining. If unemployment benefits are sufficiently low, collectively bargained wages are smaller. The theory sheds new light on policies concerned with strategic employment and the relation between replacement rates and the extent of collective wage bargaining

The Strategic Effects of Smoking Bans

We analyse the welfare effects of a publicly imposed smoking ban in privately owned places like bars. In an economy where households have heterogenous (positive and negative) attitudes towards smoking bans, bars can use the smoking regime choice as a strategic variable. In doing so, bars may endogenously implement a product differentiation. Focusing on the possibility to separate markets, we derive the Nash equilibrium of the decentral economy in a setting in which duopoly bars compete in capacity and choose the smoking regime. We show how the smoking regime choice is a function of the heterogeneity of households. Moreover, we show that the social planer implements the smoking regime obtained in the decentral economy. As such, imposing smoking bans is welfare decreasing in an economy in which bar landlords chose to allow smoking.Smoking Ban, Endogenous Product Differentiation

Pareto-Improving Unemployment Policies

We investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of low-wage earners. Lower unemployment replacement rates reduce unemployment, the net wage and unemployment benefits. A lower tax on labour increases net wages and - for certain benefit-systems - unemployment benefits as well. Combining these two policies allows to reduce unemployment in countries with “net-Bismarck” and Beveridge systems without reducing net income of workers or of the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.inequality, unemployment, taxation, policy reform

Social Interaction in Regional Labour Markets

Social interaction, i.e. the interdependence of agents' behaviour via non-market activities, has recently become the focus of economic analysis. Social interaction has been used to explain various labour market outcomes. An important result arising from the literature is the proposition that labour markets are characterised by multiple equilibria. Thus, social interaction is used as an explanation for regional unemployment disparities. Building on this, we construct a Pissarides (2000) type search model with social interaction. Despite social interaction, this type of model is characterised by only one stable equilibrium. Using a unique data set on un-/employment spell data for Germany we analyse whether multiple equilibria in regional labour markets exist. After controlling for structural differences we are able to show that the data supports the assumption of a unique equilibrium. As such, social interaction cannot explain regional unemployment disparities.

Pareto-Improving Unemployment Policies

CWe investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of lowwage earners. Lower unemployment replacement rates reduce unemployment, the net wage and unemployment benefits. A lower tax on labour increases net wages and unemployment benefits. Combining these two policies allows to reduce unemployment without reducing net income of workers or of the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.Inequality, Unemployment, Taxation, Policy reform

Pareto-Improving Unemployment Policies

We investigate how continental European unemployment can be reduced without reducing unemployment benefits and without reducing the net income of low-wage earners. Lower unemployment replacement rates reduce unemployment, the net wage and unemployment benefits. A lower tax on labour increases net wages and - for certain benefit-systems - unemployment benefits as well. Combining these two policies allows to reduce unemployment in countries with “net-Bismarck” and Beveridge systems without reducing net income of workers or the unemployed. Such a policy becomes self-financing under realistic parameter constellations when taxes are reduced only for low-income workers.Inequality; Unemployment; Taxation; Policy reform

Individual vs. Collective Bargaining in the Large Firm Search Model

We analyze the welfare and employment effects of different wage bargaining regimes. Within the large firm search model, we show that collective bargaining affects employment via two channels. Collective bargaining exerts opposing effects on job creation and wage setting. Firms have a stronger incentive for strategic employment, while workers benefit from the threat of a strike. We find that the employment increase due to the strategic motive is dominated by the employment decrease due to the increase in workers' threat point. In aggregate equilibrium, employment is ineciently low under collective bargaining. But it is not always true that equilibrium wages exceed those under individual bargaining. If unemployment benefits are sufficiently low, collectively bargained wages are smaller. The theory sheds new light on policies concerned with strategic employment and the relation between replacement rates and the extent of collective wage bargaining.search; overemployment; collective wage bargaining; wage determination