Declining High Wage Industries, Efficient Labour Contracts, and Optimal Adjustment Assistance

Frank Barry

Canadian Journal of Economics, 1995, vol. 28, issue s1, 94-107

Abstract: Wages frequently remain high in industries thrown into permanent decline. Previous analyses based on arbitrary wage rigidities have concluded that some degree of subsidization of the declining industry is warranted on efficiency grounds. The present paper proposes as an alternative an efficient bargaining model that generates wage stickiness and inefficiently low levels of intersectoral labor transfer. Expanding rather than declining sectors should be assisted under these circumstances.

Date: 1995
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