Collective bargaining,firm heterogeneity and unemployment |
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Institution: | 1. Departamento de Análisis Económico, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain;2. Banco de España, Associate Directorate General Economics and Research, Calle Alcalá 48, 28014 Madrid, Spain |
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Abstract: | We compare labor market outcomes under firm-level and sector-level bargaining in a one-sector Mortensen-Pissarides economy with firm-specific productivity shocks. Our main theoretical results are two-fold. First, unemployment is lower under firm-level bargaining, due both to a lower job destruction rate and a higher job-finding rate. Key to this result is the interplay between firm heterogeneity and wage compression under sector-level bargaining. Second, introducing efficient opting-out of sector-level agreements suffices to bring unemployment down to its level under decentralized bargaining. |
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