Awareness of General Equilibrium Effects and Unemployment

Hans Gersbach and Achim Schniewind ()
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Achim Schniewind: Heidelberg University

No 394, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We examine wage-bargaining in a two-sector economy when employers and labor unions in each sector are not always aware of all general equilibrium feedback effects. We show analytically that if agents only consider labor demand effects, low real wages and low unemployment result. With an intermediate view, i.e. when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are considered at once, low real wages and low unemployment again result. The assumption that unions and employers’ federations are not able to incorporate all feedback effects from other sectors may explain the persistence of high unemployment in Europe.

Keywords: Sectoral wage-bargaining; awareness of general equilibrium effects; unemployment (search for similar items in EconPapers)
JEL-codes: D58 E24 J60 L13 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2001-11
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (6)

Published - published as 'Collective Bargaining, Wareness of General Equilibrium Effects, and Unemployment' in: International Economic Review, 2011, 52 (3), 693 - 712

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Related works:
Working Paper: Awareness of General Equilibrium Effects and Unemployment (2005)
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