Habit formation and trade unions

Laszlo Goerke and Sven A Hartmann

Oxford Economic Papers, 2023, vol. 75, issue 3, 681-703

Abstract: We analyse how habit formation affects collective bargaining outcomes if a firm-specific trade union determines wages. For a wide variety of alternative analytical settings, such internal reference points induce the union to increase wages over time. A numerical example suggests that the resulting decline in employment can be substantial. Furthermore, policy changes in one period, which are either reversed in the next or anticipated in previous periods, have effects on wage outcomes for multiple periods because they affect the habit stock at times at which they are not yet or no longer in operation.

JEL-codes: D90 J51 J65 (search for similar items in EconPapers)
Date: 2023
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