A Reverse Holdup Problem

Antonio Estache and Renaud Foucart

Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: In a model of horizontal matching on the labor market, we show that increasing the bargainingpower of workers may increase the incentive of some employers to switch to newproduction activities. In particular, this could lead to (i) higher wages, (ii) more jobs, (iii)better jobs and (iv) higher profits. Paradoxically, the median voter may object to the economicadjustments because search costs could cut the surplus for workers of the majority type, evenwhen it creates jobs for the other ones and increases aggregate surplus.

Pages: 18 p.
Date: 2013-03
New Economics Papers: this item is included in nep-lab and nep-mic
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