Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis |
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| Authors: | Matthias Strifler Thomas Beissinger |
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| Affiliation: | 1. University of Jyv?skyl?;2. University of Hohenheim and IZA, Bonn |
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| Abstract: | We consider a theoretical model in which unions not only take the outside option into account, but also care about the performance of the firm and base their wage‐setting decisions on a firm internal reference, called the fairness reference. Two references, which measure the earnings situation of the firm, are considered – productivity and profits per worker. Wage and employment outcomes as well as the degree of wage rigidity depend on the size of the fairness reference relative to the outside option. A high fairness reference leads to wage pressure and real wage rigidity, whereas a low fairness reference leads to wage moderation and real wage flexibility. An increase in the weight on the fairness reference amplifies these deviations from the standard model. |
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