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A Dynamic Model of Union Behaviour. The Role of an Endogenous Outside Option and Bargaining Centralisation

Beate Schirwitz and Marcus Dittrich ()

No 07/06, Dresden Discussion Paper Series in Economics from Technische Universität Dresden, Faculty of Business and Economics, Department of Economics

Abstract: We analyse the role of bargaining centralisation when both the union's outside option and union membership are endogenous and considered in a dynamic framework. A dynamic two-sector model is developed where the wage rate in the first sector is either set by a monopoly union or is the result of efficient bargaining between union and firm. The union's outside option is employment in the second, competitive sector. We extend the dynamic analysis by modelling the outside option as endogenous and show that dynamic models may also overstate employment distortions in this case if bargaining is conducted on a highly centralised stage. Additionally, we offer reflexions along the optimisation process in different scenarios and a comparative static analysis, thus presenting some new general insights into the topic.

Keywords: Dynamic wage bargaining; unions; dual labour market; endogenous outside option; endogenous membership (search for similar items in EconPapers)
JEL-codes: C61 C78 J51 (search for similar items in EconPapers)
Date: 2006
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