Macroeconomic Implications of Insider Power

Assar Lindbeck and Dennis Snower

No 331, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The paper constructs a simple macroeconomic model that contains a labor market in which insiders have power in wage negotiations. Wage and employment decisions are assumed to be made before business conditions are known; thus these decisions depend on both the hiring costs and expected dismissal costs. The paper analyzes the short and long-term implications for the effectiveness of various government policies on production, employment, and pricing. Hysteresis is shown to be a special case in a continuum of symmetric long-term policy effects. A rationale for asymmetric policy effects is presented as well.

Keywords: Collective Bargaining; Employment; Government Policy; Hysteresis; Negotiations; Unions; Wages (search for similar items in EconPapers)
Date: 1989-07
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