Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and the coverage of collective bargaining endogenously, when workers differ by observable skill and may adopt either individualised or collective wage bargaining. In the calibrated model, a substantial fraction of workers and firms as well as the median voter prefer collective bargaining to the decentralised regime. A fundamental distortion of the separation decision in the form of a firing tax is necessary for these preferences to emerge. Endogenous coverage of collective bargaining can significantly modify the model’s comparative statics predictions.
Preferences for Collective versus Individualised Wage Setting
BOERI, TITO MICHELE;BURDA, MICHAEL
2009
Abstract
Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and the coverage of collective bargaining endogenously, when workers differ by observable skill and may adopt either individualised or collective wage bargaining. In the calibrated model, a substantial fraction of workers and firms as well as the median voter prefer collective bargaining to the decentralised regime. A fundamental distortion of the separation decision in the form of a firing tax is necessary for these preferences to emerge. Endogenous coverage of collective bargaining can significantly modify the model’s comparative statics predictions.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.