Preferences for Collective versus Individualised Wage Setting

Tito Boeri () and Michael Christopher Burda ()

No 3365, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: Standard models of equilibrium unemployment assume exogenous labour market institutions and flexible wage determination. This paper models wage rigidity and collective bargaining endogenously, when workers differ by observable skill and may adopt either individualized 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 represented by employment protection (a firing tax) is necessary for such preferences to emerge. Endogenizing collective bargaining can significantly modify comparative statics effects of policy arising in a single-regime setting.

Keywords: wage rigidity; employment protection; equilibrium unemployment (search for similar items in EconPapers)
JEL-codes: J5 J6 D7 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-lab and nep-ltv
Date: 2008-02
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Related works:
Working Paper: Preferences for Collective versus Individualised Wage Setting (2008)
Journal Article: Preferences for Collective Versus Individualised Wage Setting (2009)
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