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Two-Stage Bargaining with Coverage Extension in a Dual Labour Market

Mark A. Roberts, Karsten Staehr () and Torben Tranaes ()
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Mark A. Roberts: University of Nottingham

No 97-13, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This paper studies two-stage bargaining in a simple general equilibrium model with a dual labour market. We analyse the case where agreements reached at the central level in the unionized sector extend beyond this sector, which seems to be a characteristic feature of continental European labour markets. Conditions are identified under which firms and unions have a commonality of interest in extending coverage of a minimum wage to the non-unionized sector of the economy. In many countries, labour markets comprise a primary sector with high non-market clearing wages and job queues, and a secondary sector with market clearing. The latter arises endogenously in our model: it is optimal for the unionized sector to impose a market clearing wage on the non-unionized sector. This suggests that coverage extension can increase welfare.

Keywords: coverage extension; two-stage bargaining; minimum wages; dual labour market; centralization (search for similar items in EconPapers)
JEL-codes: J20 J42 J50 (search for similar items in EconPapers)
Date: 1997-11
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Published in: European Economic Review 44(1) 2000, 181-200

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http://dx.doi.org/10.1016/S0014-2921(98)00056-7

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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:9713

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