Does collective wage bargaining restore efficiency in a search model with large firms?

Bauer C., Lingens J.


Abstract
Existing search and bargaining models show that firms hire an inefficiently large number of workers. We ask whether decentralised collective wage bargaining may result in a second-best allocation. Collective bargaining restores efficiency when the bargained wage is independent of employment; conditions that we characterise. Firms then behave as if collective bargaining was over both wages and employment, thus linking the large-firm search and bargaining environment to the efficient bargaining model (McDonald and Solow, 1981). Under more realistic conditions, workers can bargain for a share of output, so that the wage is then a function of employment. In equilibrium, firms are too large and firm entry is inefficient. © 2013 Royal Economic Society.



Publication type
Article in Journal

Peer reviewed
Yes

Publication status
Published

Year
2014

Journal
Economic Journal

Volume
124

Issue
579

Start page
1066

End page
1085

Pages range
1066-1085

Publisher
Blackwell Publishing Ltd

Language
English

ISSN
0013-0133

DOI

Full text

Affiliation
Ludwig-Maximilians-Universitat Munchen; Westfalische Wilhelms-Universitat Munster