Employee share ownership in a unionised duopoly

Profit sharing schemes have been analysed assuming Cournot competition and decentralised wage negotiations, and it has been found that firms share profits in equilibrium. This paper analyses a different remuneration system: employee share ownership. We find that whether firms choose to share ownership or not depends on both the type of competition in the product market and the way in which workers organise to negotiate wages. If wage setting is decentralised, under duopolistic Cournot competition both firms share ownership. If wage setting is centralised, only one firm shares ownership if the degree to which goods are substitutes takes an intermediate value; otherwise, the two firms share ownership. In this case, if the union sets the same wage for all workers neither firm shares ownership. Therefore, centralised wage setting discourages share ownership. Finally, under Bertrand competition neither firm shares ownership regardless of how workers are organised to negotiate wages.     

Wage setting actors and sticky wages: Implications for the business cycle and optimal monetary policy

Two sticky-wage models are introduced in this paper to examine the implications of having either households or firms as wage setting actors. The rate of wage inflation depends positively on the output gap if households set wages whereas such a relationship is of negative sign when firms set wages. Moreover, impulse–response functions and the statistical comparison with US data show different business cycle properties depending upon wage setting actors. Finally, optimal monetary policy is derived for each case, and compared with a Taylor-type monetary policy rule.     

Wage Determination and Occupational Attainment in the Rural Industrial Sector of China

The development of China's rural township, village, and private enterprises (TVP), in which real wages have grown at around 11% per annum over the past decade, is one of the most remarkable achievements of China's economic reform. This achievement has taken place despite relatively rigid control of labor mobility and job assignment by local authorities. Individual firms, however, have considerable influence over wage determination. This study applies human capital theory to explore the wage setting process in this sector. It is found that the impact of both labor market experience and education reflect labor productivity rather than sociopolitical rules of wage setting. The paper employs a logit model to investigate the links between education and occupational attainment. The relationship between wages, education, and occupational attainment, for those who find jobs through their own efforts, is similar to that of western market economies. Although education does not affect wages of those assigned jobs it affects their occupational attainment.     

DOWNWARDS WAGE RIGIDITY,ENDOGENOUS SEPARATIONS AND FIRM TRAINING

This paper analyses the effect of downwards wage rigidity on wage setting, wage compression and firm training. It is shown that downwards wage rigidity in future periods induces a wage penalty and increases wage compression in the present period. However, contrary to previous work this is not sufficient to increase firms’ training investments. The reason lies in the endogeneity of separations, which become more frequent.     

Wage‐Setting Institutions and R&D Collaboration Networks

We analyse how union structures that differ in the degree of wage‐setting centralisation affect the pattern of R&D network formation. Within the context of a three‐firm industry, a central union that sets a uniform wage is shown to induce a partial R&D network that includes two firms but excludes the third. In contrast, we find that, under less centralised union structures, firms have incentives to form R&D networks with a larger number of alliances. This result is consistent with the stylised facts for industrialised countries: recent decades have seen an upsurge in R&D alliances along with labour market deregulation towards more flexible wage‐setting institutions.     

Central Wage Setting under Multiple Technological Equilibria: A Mechanism for Equilibrium Elimination

Instituting an initial round of centralized wage setting before an ultimate round of decentralized wage bargaining may actually raise employment. A general multi–equilibrium model is set up with strategic complementarities in the implementation of a new technology through aggregate demand spillovers. In this model, centralized wage setting to establish an outside option wage, which is selectively binding on lo–tech firms, may achieve the "big push" to a hi–tech general equilibrium with higher employment, output, wages and profits.     

Wage settlements and wage setting: results from a multi-level model

Which dimensions of wage setting differ across establishments applying collective contracts and uncovered establishments? The empirical analysis reported here utilizes German linked employer–employee data for the years 1990, 1995 and 2001 and is restricted to workers without supervisory functions in larger manufacturing firms. Results show that the expected wage of an average worker is higher in firms applying collective contracts, while returns to human capital and the gender wage gap are reduced. Moreover, during the 1990s these effects became stronger.     

Unionization,international integration,and selection

Abstract We study how unionization affects competitive selection between heterogeneous firms when wage negotiations can occur at the firm or at the profit‐centre level. With productivity specific wages, an increase in union power has: (i) a selection‐softening; (ii) a counter‐competitive; (iii) a wage‐inequality; and (iv) a variety effect. In a two‐country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit‐centre bargaining, we show how trade liberalization can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets).     

Reforming the new economic mechanism in Hungary

Following steps taken towards recentralization between 1972 and 1976, the reform measures introduced in 1980 and 1981 have re-established the original directions of the New Economic Mechanism in Hungary. The NEM, established in 1968, had aimed at replacing plan directives by market relations among firms, limiting the scope of central price determination, linking domestic prices to world-market prices, and increasingly decentralizing investment decisions. The recent reform measures are evaluated and possible future changes are considered. Price setting, exchange rate and protection, wage determination and personal income, investment decisions, and organizational structure are examined.     

Public firms' merger,employment, and welfare in developing countries: A general equilibrium analysis

This paper examines the effect of a merger of state‐owned firms on wage gap, employment, and social welfare in a general equilibrium setting. For a developing economy with state‐owned firms in the urban sector, a merger via a reduction in the number of the urban state‐owned firms can reduce the cost of capital. It then lowers the skilled wage rate through the factor‐substitution effect, while it raises the unskilled wage by the inflow of capital to the rural sector and hence lowers urban unemployment. In addition, the reduction in the number of the urban state‐owned firms can yield a scale effect to the firms. The beneficial effects on higher urban output and less urban unemployment can improve social welfare of the developing economy.     

Egalitarian Wage Policies and Long-Term Unemployment

How does a centrally imposed egalitarian wage policy affect unemployment, when workers differ with respect to productivity? The effect on total unemployment is found to be ambiguous. Egalitarian wages encourage job creation because increased profits derived from the most productive workers more than outweigh reduced profits derived from the least productive workers. Short-term unemployment is reduced. On the other hand, firms respond by raising their reservation productivity. Some workers are left almost completely unemployable. Long-term unemployment rises. Less inequality in the wage distribution is obtained at the expense of more inequality in the distribution of unemployment.     

Unionisation and Foreign Direct Investment: Challenging Conventional Wisdom?

This paper investigates the effects of different degrees of wage setting centralisation on the incentive of a MNE to locate in a host country, and on the host country's welfare. Decentralised and centralised wage bargaining are considered. The nature of product market competition between the MNE and domestic firms proves crucial to results which cast doubt on some of the conventional wisdom on FDI. In particular, we show that: (i) it is not always welfare improving to attract inward FDI, and (ii) the MNE may prefer centralised to decentralised wage setting regimes.     

Firm ownership and internal labour practices in a transition economy

One feature common to many post‐socialist transition economies is a relatively compressed wage structure in the state‐owned sector. We conjecture that this compressed wage structure creates weak incentives for work effort and worker skill acquisition and thus presents adverse consequences for the entire transition economy if a substantial portion of the labour force works in the state sector. We explore firm wage incentives and worker training, as well as other labour practices and outcomes, in a transition setting with matched firm and worker data collected in one of the largest provinces of Vietnam – Ho Chi Minh City. The Vietnamese state sector exhibits a compressed wage distribution in relation to privately owned firms with foreign ownership. State wage practices stress tenure over worker productivity and their wage policies result in flatter wage–experience profiles and lower returns to education. The state work force is in greater need of formal training, a need that is in part met through direct government financing. In spite of the opportunities for government financed training and at least partly due to inefficient worker incentives, state firms, by certain measures, exhibit lower levels of labour productivity. The private sector comparison group to state firms for all of these findings is foreign owned firms. The internal labour practices of foreign firms are more consistent with a view of profit‐maximizing firms operating with no political constraints. This is not the case for Vietnamese de novo private firms that exhibit much more idiosyncratic behaviour and whose labour practices are often indistinguishable from state firms. The exact reasons for this remain a topic of on‐going research yet we conjecture that various private sector constraints, including limited access to formal capital, play an important role.     

A note on internal and external reference in efficiency wage models

According to Bewley, a workers’ morale depends on being treated fairly within firms. This implies that the internal comparison of the own wage with wages paid to other workers within the firm affects individual effort determination. By contrast, the standard efficiency wage models only consider a comparison of the own wage with external income opportunities as the only determinant for individual effort. We provide a simple efficiency wage framework in which both the internal and external perspectives can affect individual effort determination. Our framework suggests that the internal reference is essential for the existence of real wage rigidity while the external reference ensures an upward-sloping wage-setting curve.      

Wage inequality and between-firm wage dispersion in the 1990s: A comparison of rural and urban enterprises in China

Using a worker–firm matched sample, this paper compares the changes of wage structures of urban and rural enterprises following public sector restructuring in China's manufacturing sector. While the wage responses of rural firms with respect to firm characteristics are found to have declined steadily, compensation of urban workers has become increasingly linked to their firms' ability to pay. Our analysis reveals that industrial restructuring has weakened the influence of institutional factors, such as market power, soft budget constraints, and insider influence, on the wage determination of rural firms but it has enhanced their impact on urban firms. Journal of Comparative Economics 33 (4) (2005) 664–687.     

Outsourcing of Unionized Firms and the Impact of Labor Market Policy Reforms

This paper shows that outsourcing of parts of the workforce in unionized firms leads to wage moderation both in the case of strategic and flexible outsourcing. As long as the share of the outsourced workforce is not too large, this wage‐moderation effect on domestic employment outweighs the direct substitution effect so that domestic employment increases in unionized firms as outsourcing costs fall. With respect to the impact of labor tax reform changes in the wage tax rate, the tax exemption and the unemployment benefit payments affect domestic wage setting in the same way as in the absence of outsourcing. Furthermore, increasing the degree of tax progression by keeping the relative tax burden per worker constant continues to be good for employment. However, except for low outsourcing activities, the impact of these policy measures will become smaller as outsourcing costs fall.     

Multinational Firms and Technology Transfer

We construct an oligopoly model in which a multinational firm has a superior technology compared to local firms. Workers employed by the multinational acquire knowledge of its superior technology. The multinational may pay a wage premium to prevent local firms from hiring its workers and thus gaining access to their knowledge. In this setting, the host government has an incentive to attract FDI due to technology transfer to local firms or the wage premium earned by employees of the multinational firm. However, when FDI is particularly attractive to the multinational firm, the host government has an incentive to discourage FDI.
JEL classification : F 13; F 23; J 41; L 13; O 14; O 33; O 38     

FIRM HETEROGENEITY AND THE LABOR MARKET EFFECTS OF TRADE LIBERALIZATION*

This article develops a model that incorporates workers' fair wage preferences into a general equilibrium framework with heterogeneous firms. In a setting where the wage considered to be fair by workers depends on the productivity of the firm they are working in, we study the determinants of profits, involuntary unemployment and within‐group wage inequality. We use this model to investigate the effects of globalization, thereby pointing to distributional conflicts that have so far not been accounted for: a simultaneous increase of average profits and involuntary unemployment as well as a surge in within‐group wage inequality.     

Endogenous wage bargaining institutions in oligopolistic sectors

Summary. This paper explores the endogenous emergence of wage bargaining institutions in a union-oligopoly framework. Technological asymmetries among firms are shown to be the driving force for the emergence of alternative wage bargaining centralization structures that are observable in real life. As wage deals at the sector-level obtain the consensus of all unions and the efficient firms, a regulator has an incentive to authorize those deals by activating/establishing a Minimum Sectoral Wage Institution(MSWI). If productivity differences are high enough, wage setting above the established wage floor may subsequently occur in efficient firms. Otherwise, a completely centralized wage bargaining structure emerges and the sector-level wage deal is simply confirmed as the firms wage rate. If, however, productivity asymmetries are rather insignificant, firms and unions have conflicting interests and a completely decentralized wage bargaining regime prevails in equilibrium.Received: 17 December 2001, Revised: 9 June 2003, JEL Classification Numbers: J50, J31, L13.Correspondence to: Emmanuel PetrakisParticular appreciation is expressed to an anonymous referee who has greatly helped us to improve our work upon an earlier draft of this paper. We also wish to thank T. Kollinzas, J. Padilla, H. Bester, J. Sakovics, K. Uwe-Kühn, J. J. Dolado, J. L. Ferreira, A. Matsui and C. Martinelli for their helpful comments and suggestions.     

The Impact of Unionization Structures with Heterogeneous Firms and Rent‐Sharing Motives

How are unemployment and output affected if wages are set on the sector level rather than firm level? We take a new look at this question, allowing for heterogeneous firms and rent‐sharing motives. Without these motives, employment and output are lower under sector‐level wage‐setting due to higher wage markups. With rent‐sharing motives, however, firm selection is higher under sector‐level wage‐setting, which tends to increase employment and output, thus counteracting the markup effect. Simulations show that the firm‐selection effect decreases the difference between the two unionization structures substantially but it does not change the signs of the effects on output and employment.