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Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources

Xiaoming Cai, Pieter Gautier () and Makoto Watanabe ()

No 5483, CESifo Working Paper Series from CESifo Group Munich

Abstract: An advantage of collective wage agreement is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached because more productive firms (for a particular worker type) can no longer signal this by posting higher wages. Specifically, we consider a search model with two sided heterogeneity and on-the-job search. We compare the most favorable case of a collective wage agreement (i.e. the wage that a planner would choose under the constraint that all firms in a sector-occupation cell must offer the same wage) with the case without collective wage agreement. We find that collective wage agreements are never desirable if firms can commit ex ante to a wage and only desirable if firms cannot commit and the relative efficiency of on the job search to off- the job search is less than 20%. This result is hardly sensitive to the bargaining power of workers. Empirically we find both for the Netherlands and the US that this value is closer to 50%.

JEL-codes: E24 J62 J63 J64 (search for similar items in EconPapers)
Date: 2015
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Related works:
Journal Article: Collective versus decentralized wage bargaining and the efficient allocation of resources (2014) Downloads
Working Paper: Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources (2012) Downloads
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