Wage Formation and the Persistence of Unemployment

Nils Gottfries () and Henrik Horn

Economic Journal, 1987, vol. 97, issue 388, 877-84

Abstract: The basic idea is that employed and unemployed workers have diverging interest s and that wage decisions tend to favor the interest of those employe d. This is shown to imply that unemployment, once created, tends to p ersist after wage contracts have been negotiated anew. The reason is that the lower the number of workers employed yesterday, the fewer th e number of jobs required today in order to ensure the previously emp loyed workers a high probability of employment. Unions, acting in th e interest of the employed workers, may therefore raise wages so that unemployment persists. Copyright 1987 by Royal Economic Society.

Date: 1987
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