Macroeconomic Stabilization Policy and Trade Union Behaviour as a Repeated Game

John Driffill
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John Driffill: University of Southampton

A chapter in Trade Unions, Wage Formation and Macroeconomic Stability, 1986, pp 158-184 from Palgrave Macmillan

Abstract: Abstract Government and union behaviour is modelled as a game in a simple macroeconomic model subject to shocks. If the government attempts to stabilize employment by responding to its deviation from a target level, the union perceives a steeper real wage/employment tradeoff and chooses higher wages and lower employment. Stabilization thus causes higher but less variable unemployment. If the game is played repeatedly, the government can attempt to achieve a better outcome for both players, and may be able to stabilize unemployment without increasing its mean level. The need to use credible threats restricts its ability to achieve this outcome.

Keywords: Monetary Policy; Real Wage; Social Contract; Social Welfare Function; Social Optimum (search for similar items in EconPapers)
Date: 1986
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DOI: 10.1007/978-1-349-08596-5_10

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