WAGE BARGAINING AND MERGER INCENTIVES WITH ASYMMETRIC COSTS

This paper examines how wage bargaining within each firm influences the relationship between an equilibrium ownership structure and the most preferred ownership structure from the viewpoint of social welfare, in a unionized oligopoly of asymmetric firms with respect to productivity of capital. We consider the merger incentive of each firm’s owner when the wage level is determined through bargaining between the firm’s owner and union. We derive a condition for both the degree of cost asymmetry among existing firms and the relative bargaining power of each firm’s owner to her/his union such that each ownership structure can be observed in equilibrium. We also show that although the two types of ownership structures with the merger involving the least efficient firm can be equilibria and socially optimal, these structures are observed only when both the degree of cost asymmetry and the relative bargaining power of each firm’s owner are moderate. Finally, we analyse the relationship among the cooperative game approach employed in this paper and two non‐cooperative merger formation approaches, and examine the robustness of the results obtained in this paper against the change in the assumption regarding each firm’s cost function.     

Investment and technological choice in a right-to-manage model

We analyze the interactions between investment and local wage bargaining in a putty-clay model where the investment decision commits the firm to a particular capital intensity. This technological precommitment is used strategically in order to manipulate the bargaining outcome. We show that this strategic behavior induces a nonmonotonic relationship between the capital and labor demands of the firm and most of its environmental parameters (e.g., the bargaining power of the union, its minimum wage requirement, the capital cost). The results we obtain in our putty-clay framework thus contradict several conclusions of the standard literature on wage bargaining and investment.     

Globalization and the decline in labor shares: Exploring the relationship beyond trade and financial flows

We employ data from up to 125 countries during the 1970–2009 period to explore the relationship between globalization and labor share. Existing studies report a negative relationship between trade and investment flows and labor shares. While we also find that economic flows are often negatively related to labor shares, measures of social globalization tend to be positively related to labor shares. While greater mobility of goods and capital may be associated with increases in capital's bargaining power, all else equal, greater flows of information, ideas, and people may increase the bargaining power of workers.     

Income Taxes,Subsidies to Education,and Investments in Human Capital

We study a two‐sector economy with investments in human and physical capital and imperfect labor markets. Investments are irreversible and noncontractible, due to random matching between firms and workers. Income is allocated according to the Nash bargaining mechanism. At equilibrium, given the distribution of the agents across sectors, there is underinvestment in both human and physical capital, due to the holdup problem generated by bargaining and noncontractibility. Self‐selection of the agents into the two sectors typically induces too many workers to invest in high skills. Compared to the constrained efficient allocation, at each equilibrium, there are too many people investing too little effort in the high‐skill sector. We also study the effects of several tax policies on total expected surplus.     

Relative wages, labor specialization and bargaining patterns

The goal of this paper is to study the effects of centralized and decentralized bargaining patterns on wage inequality when there are two different types of labor, skilled and unskilled. We present two models where labor is specialized between firms, that is, there are two types of firms, each one employing one type of labor. We show that the revenue shares of the production factors in each type of firm and the union power are crucial determinants of the relative wage. In contrast, the relative expected wage is the same across models and bargaining patterns.     

Capital market integration and gender inequality

This study explores the effects of globalization on gender inequality. Specifically, we describe how, in terms of capital market integration, globalization alters the gender gap in wage rates through changes in labor demand for capital‐intensive sectors. Consequently, via changes in the bargaining positions of men and women, globalization leads to opposite effects on the couple's labor supply and fertility decisions in capital‐importing and capital‐exporting countries. Moreover, by considering the properties of the industrial structures of capital‐importing and capital‐exporting countries, we show that globalization induces empirically observed declines in fertility rates throughout the world.     

Structural Changes in the Labor Market and the Rise of Early Retirement in France and Germany

The rise of early retirement in Europe is typically attributed to the European system of taxes and transfers. A model with an imperfectly competitive labor market allows us to consider also the effects of bargaining power and of matching efficiency on pre‐retirement. We find that lower bargaining power of workers and declining matching efficiency have been important determinants of early retirement in France and Germany. These structural changes, combined with early retirement transfers and population aging, are also consistent with the employment and unemployment rates, labor share and seniority premia.     

Wages,Profits, and Rent‐Sharing in an Open Economy

This paper examines the link between international trade and labor market bargaining power. It reviews simple theories of rent‐sharing in closed and open economies. Earlier studies on the issue of rent‐sharing implicitly assume a closed economy. This assumption may provide some misleading results, especially for studying current developments in the US labor market. Empirical results suggest that the apparent decline in labor’s bargaining power in US manufacturing may be attributable to growing international integration.     

WAGE AND EMPLOYMENT DETERMINATION THROUGH NON-COOPERATIVE BARGAINING

This paper investigates wage and employment determination by a group of workers or union and a firm, making use of the techniques of non-cooperative bargaining. Previous analyses have examined wage determination with an artificial restriction that employment is determined either before or after wage determination has occurred. Here, employment determination is made part of the bargaining process. With two variables being determined, there is bargaining with a variable pie and solutions correspond to equilibria without commitment. Two different notions of efficiency – exchange and pie efficiency – are relevant and serve to characterise equilibria. Multiple equilibria are shown to arise naturally once exchange inefficient proposals are possible. In all equilibria there is overemployment. Factors that restrict a firm's ability to alter the labour force during or after the wage-bargaining process are shown, paradoxically, to benefit the firm.     

Rent‐Sharing and Workers' Bargaining Power: An Empirical Cross‐Country/ Cross‐Industry Panel Analysis

In this paper, we study how rents are shared between capital and labour, using industry‐level panel data for 19 OECD countries from 1988 through to 2007. The first step is an explanation of the rent‐creation process. We provide evidence of a significant impact of regulation on value‐added prices at the industry level relative to the value‐added price for the overall economy (rent). In the second step, we dissect the value‐added sharing process. By running ordinary least‐squares and instrumental variables estimations, we obtain results that confirm the Blanchard–Giavazzi prediction: the impact of rents on the capital share depends on workers' bargaining power.     

Offshoring and Reshoring: The Roles of Incomplete Contracts and Relative Bargaining Power

This paper demonstrates that an increase in bargaining power of Northern firms relative to that of their Southern contractors can trigger reshoring if the North-South wage differential is moderate, such that only industries with a high share of unskilled labor find outsourcing profitable. However, such an increase in Northern bargaining power can increase offshoring if the wage differential is so high that even industries with a low share of unskilled labor also offshore.     

SUBSIDIES AND INEFFICIENCY: STOCHASTIC FRONTIER APPROACH

U.S. urban transit systems receive operating and capital subsidies from various levels of government. Each firm minimizes its cost net of subsidies subject to its production function. The first order conditions from this minimization give a set of equations that are estimated using a stochastic frontier approach. From the results are calculated technical and allocative inefficiencies. The allocative inefficiencies are further decomposed among two sources, subsidies and factors internal to the firm. The analysis reveals large allocative inefficiencies between labor, fuel, and capital. Furthermore, it finds that subsidies lead to excess use of labor relative to capital and excess use of fuel relative to capital and labor. Also, most allocative inefficiencies in firms are due to internal factors and not subsidies, and the sizes of the inefficiencies vary substantially among transit firms.     

Labor markets and productivity in developing countries

In middle-income countries, the informal sector often accounts for a substantial fraction of the urban labor force. We develop a general equilibrium model with matching frictions in the urban labor market, the possibility of self-employment in the informal sector, and scope for rural–urban migration. We investigate the effects of labor market institutions, different types of growth, and company taxes on labor market outcomes and aggregate productivity. We quantify these effects by calibrating the model to data for Mexico, and show that matching frictions can lead to a large informal sector when formal sector workers have substantial bargaining power.     

Capital–Skill Complementarity: Does Capital Composition Matter?

We estimate the effect of capital composition on the size of capital–skill complementarity and the skill wage premium. Disaggregating the capital stock into different types according to technological content, we find that: capital is more of a q‐complement to skilled labor than to unskilled labor; the higher the technological component of capital, the larger the size of the relative q‐complementarity between capital and skilled labor; and replacing non‐technological with technological capital might increase the skill wage premium by about 9 percent. Our results highlight that changes in capital composition matter for understanding changes in the skill wage premium.     

LABOR‐MARKET FRICTIONS,HUMAN CAPITAL ACCUMULATION,AND LONG‐RUN GROWTH: POSITIVE ANALYSIS AND POLICY EVALUATION*

We construct a search model with endogenous human capital and labor participation to study the growth effects of short‐run frictions and the effectiveness of human capital policies. Employment, learning effort, and output growth increase with more effective learning, better labor‐market matching, lower job separation, or less costly vacancy creation. Although output growth, employment, vacancy creation, and learning and search effort are most responsive to changes in a human capital policy that directly affects learning effort, such a policy need not be more beneficial for welfare. The effects of human capital policies become larger as the severity of labor‐market frictions rises.     

A dynamic theory of the declining aggregated labor income share: Intangible capital vs. tangible capital

Reports of the literature documenting the declining labor share of income have increased greatly in the past few years, which is opposed to one of the famous “Kaldor's stylized facts” of growth. The declining labor income share has been observed since the 1980s in a number of countries, and especially in the United States. Recent studies have revealed the following five major driving forces of the declining labor share: (i) supercycles and boom-busts, (ii) rising and faster depreciation, (iii) superstar effects and consolidation, (iv) capital substitution and automation, and (v) globalization and labor bargaining power. We set up a two-sector optimal growth model with the R&D intermediate sectors producing intangible capital. By integrating driving factors (ii) through (iv) above into the model, we demonstrate the long-run decline of the aggregated labor income share.     

UNION WAGE COMPRESSION AND SKILL ACQUISITION

In this paper, I examine the relationship between unionisation and total output in an economy with a dual labour market, heterogeneous agents, and human capital investment. My primary focus is the skill acquisition channel, through which unionization affects total output. I theoretically demonstrate that the skill premium, and thus human capital investment, is determined by the prevalence of unions in high‐ or low‐skill‐intensive sectors. In particular, if a low (high)‐skill sector is unionised, then the skill premium is higher (lower), ensuring a larger (smaller) high‐skill sector, irrespective of the unions bargaining power. To test this hypothesis, I also empirically investigate the effects of unionisation on total productivity. The results indicate that through the reallocation of labour, unionisation induces an expansion of high‐skill‐intensive sectors, while low‐skill‐intensive sectors contract.     

BARGAINING AMONG FARMERS,GOODWILL, AND THE SUCCESS OF COOPERATIVES

A model of concessional bargaining among farmers explains the success (or lack thereof) of cooperative institutions in rural farm settings in the developing regions. Concessional bargaining in day‐to‐day interactions generates goodwill, which helps smoothen future dealings amongst farmers as well as with outside agents. In particular, we model the existence of goodwill amongst farmers as enhancing their ability to collectively bargain with an outside dealer that buys their farm produce. Results suggest that when dealing with each other, farmers offer higher concessions when the risk of loss or reversal in bargaining power is high; however, the level of concession is also influenced by the degree of reciprocity and parameters that affect bargaining surplus. Findings provide further insights over the success of cooperative institutions in rural farm settings where inter‐farmer goodwill dynamics determines the cooperative's bargaining outcomes. Specifically, when farmers generously reciprocate each other's goodwill gestures, it leads to better outcomes through increasing their cooperative reservation price. In contrast, when the degree of reciprocity is lower, or when the risk of bargaining power switching is higher, farmers extract more surplus from other farmers, and this also lowers the cooperative's bargaining outcomes and makes the cooperative arrangement unviable in the long term.     

Factor‐biased public infrastructure and wage inequality

This paper analyzes how factor‐biased public infrastructure affects the skilled–unskilled wage inequality. In the basic model with a full employment economy, we find that when the weighted dependence of skilled labor and capital in the urban skilled sector on public infrastructure is large enough relatively to that of unskilled labor and capital in the urban unskilled sector, the wage inequality will be expanded. We also discuss labor‐biased and capital‐biased public infrastructure in our framework, and find that the relative dependences of relevant labor or capital on public infrastructure are important determinants of wage inequality. In the extended models, we analyze separately the issue of wage inequality in the economy with unemployment and the totally open capital market, and find the results of the basic model almost still hold.     

Fiscal policies,frictional labor market,and endogenous growth

This paper considers the spillover effects from public spending, and studies optimal fiscal policies in frictional labor markets. We obtain that the optimal shares of government spending in production and consumption are the same as those in a frictionless labor market under the Hosios condition. However, as higher capital accumulation increases the cost of job creation and maintenance, the optimal tax rate of capital income is positive. In addition, when the labor market is frictional, the marginal benefit of labor is larger than the marginal utility of leisure. Thus, consumption and labor should not be taxed uniformly any more. Our calibration suggests that all of the three tax rates should be positive. Moreover, in the situation in which the Hosios condition does not hold, the shares of public productive spending and public consumption both increase when the worker’s bargaining power is greater than the elasticity of search in the matching function.