Essays on Wage Bargaining in Dynamic Macroeconomics

161 Pages·2019·4.921 MB·English

by  Oliver Claas

Lecture Notes in Economics and Mathematical Systems 689
Oliver Claas
Essays on Wage
Bargaining
in Dynamic
Macroeconomics
Lecture Notes in Economics
and Mathematical Systems 689
FoundingEditors
M.Beckmann
H.P.Ku¨nzi
Editors-in-Chief
Prof.Dr.G.Fandel
FacultyofEconomics
UniversityofHagen
Hagen,Germany
Prof.Dr.W.Trockel
MuratSertelInstituteforAdvancedEconomicResearch
IstanbulBilgiUniversity
Istanbul,Turkey
and
InstituteofMathematicalEconomics(IMW)
BielefeldUniversity
Bielefeld,Germany
EditorialBoard
H.Dawid,D.Dimitrov,A.Gerber,C.-J.Haake,C.Hofmann,T.Pfeiffer,
R.Slowin´ski,W.H.M.Zijm
Moreinformationaboutthisseriesathttp://www.springer.com/series/300
Oliver Claas
Essays on Wage Bargaining
in Dynamic Macroeconomics
123
OliverClaas
CenterforMathematicalEconomics
BielefeldUniversity
Bielefeld,Germany
ISSN0075-8442 ISSN2196-9957 (electronic)
LectureNotesinEconomicsandMathematicalSystems
ISBN978-3-319-97827-7 ISBN978-3-319-97828-4 (eBook)
https://doi.org/10.1007/978-3-319-97828-4
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Preface
ThismonographisinessencemyPh.D.dissertationsuccessfullydefendedonOc-
tober27,2017,attheDepartmentofEconomicsatBielefeldUniversity,Germany.
The origins of this work go back to Volker Böhm’s lecture series on macro-
economic theory, which I attended during my M.Sc. in Bielefeld. I subsequently
wrotemyM.Sc.thesis(Diplomarbeit)inthisfield,whichencouragedmetopursue
a Ph.D. in economic theory. My thesis integrated collective bargaining into a
macroeconomic model of the same type as I investigate in this book, but with
an emphasis on disequilibrium dynamics. It is my M.Sc. thesis that marks the
beginningofmyscientificcollaborationwithVolkerBöhm.
I am indebted to Volker Böhm for his outstanding supervision: for countless
stimulating discussions (many of them going beyond economic theory), for his
advice,forcoauthoringtwoworkingpapers(andothertexts)withme,forhisfaith
and active support in promoting these papers, for tolerating my time-consuming
jobs, and, in the end and in slightly different contexts, for sharing the intense
experienceofapproachingsubmissiondeadlines.Iwouldliketoexpressmythanks
to Alfred Greiner for his willingness to co-supervise this thesis. Frank Riedel
managedtofindwaystorenewmyfundingmorethanonce;Iamgratefulforthese
jobopportunitiesandfortheexcitingchallengesthatcamealongwiththem.Jennifer
Rasell not only proofreadthe manuscript,but also invaluablymotivatedme when
boththedissertationprojectandthepublicationneededtobefinished.
Besidestheseindividuals,Ienjoyedbeingpartofaprofessionalandsupportive
institutional environment: the International Research Training Group “Economic
Behavior and Interaction Models” (EBIM) financed by the German Research
Foundation(DFG), the Center for MathematicalEconomics(IMW), the Bielefeld
Graduate School of Economics and Management (BiGSEM), and the Center for
Interdisciplinary Research (ZiF). Within this setup, I was privileged to meet and
v
work with many great colleagues. Several of them have become close friends—
thankyouall.
Finally,Iowemyfamilyadebtofgratitudefortheirpermanentsupport.
Bielefeld,Germany OliverClaas
August2018
Contents
1 Introduction .................................................................. 1
1.1 TheAS–ADModelUnderCompetitionasaGeneralFramework ... 2
1.2 TheAS–ADModelandNoncompetitiveMarkets .................... 4
1.3 TheAS–ADModelandCollectiveBargaining........................ 4
1.4 SummaryoftheChapters............................................... 5
References..................................................................... 7
2 EfficientBargaininginaDynamicMacroeconomicModel ............. 9
2.1 Introduction ............................................................. 9
2.2 TheLaborMarketwithEfficientBargaining.......................... 11
2.2.1 ThePublicSector............................................... 11
2.2.2 TheProductionSector.......................................... 11
2.2.3 TheConsumptionSector....................................... 12
2.2.4 EfficientBargainingandEmployment......................... 14
2.2.5 NoncompetitiveWageSettingVersusWageBargaining...... 19
2.3 TemporaryEquilibriumwithEfficientBargaining .................... 22
2.3.1 AggregateSupplyandAggregateDemand.................... 22
2.3.2 PropertiesoftheTemporaryEquilibrium...................... 25
2.3.3 TheRoleofUnionPower ...................................... 28
2.3.4 ComparingBargainingandCompetition...................... 29
2.3.5 InefficientRedistributionUnderEfficientBargaining......... 33
2.3.6 Summary........................................................ 35
2.4 AParametricExample:TheIsoelasticCase........................... 36
2.4.1 TheRoleofUnionPower ...................................... 40
2.4.2 UnionPowerandWages ....................................... 43
2.4.3 ComparingWages,Prices,andPayoffs........................ 46
2.5 DynamicsofMonetaryEquilibrium ................................... 51
2.5.1 DynamicsofMoneyBalances ................................. 51
2.5.2 DynamicswithPerfectForesight .............................. 53
2.5.3 SteadyStatesandStability ..................................... 55
vii
viii Contents
2.5.4 DynamicsofRealMoneyBalancesUnderPerfect
Foresight ........................................................ 57
2.5.5 StableBalancedPaths .......................................... 59
2.6 SummaryandConclusion .............................................. 64
References..................................................................... 65
3 Wage Bargaining, Employment, and Union Power:
TheRight-to-ManageApproach ........................................... 67
3.1 Introduction ............................................................. 67
3.2 NashBargainingwithRighttoManage................................ 68
3.3 WageBargainingandEmployment .................................... 71
3.4 TheTemporaryEquilibriumwithRighttoManage................... 74
3.4.1 Comparative Statics of the TemporaryGeneral
Equilibrium ..................................................... 75
3.4.2 AParametricExample:TheIsoelasticCase................... 79
3.5 UnionPowerandtheMacroeconomy.................................. 83
3.6 DynamicsofMonetaryEquilibriumUnderPerfectForesight........ 88
3.7 SummaryandConclusion .............................................. 93
3.8 Appendix................................................................ 94
3.8.1 TheBargainingProblem ....................................... 94
3.8.2 ComparativeStaticsoftheTemporaryEquilibrium........... 98
3.8.3 CalculationsParametricExample:TheIsoelasticCase....... 100
References..................................................................... 107
4 Efficient Bargaining Under Labor Market Segmentation
inaMacroeconomicModel ................................................. 109
4.1 Introduction ............................................................. 109
4.2 TheEconomywithaSegmentedLaborMarket....................... 111
4.2.1 TheSectorsoftheEconomyandtheUnion................... 112
4.2.2 ClearingoftheLaborMarkets................................. 115
4.2.3 TheFunctionalIncomeDistribution........................... 126
4.2.4 TheRateofUnderemployment................................ 128
4.3 TheTemporaryEquilibriumwithaSegmentedLaborMarket ....... 129
4.3.1 AggregateSupplyandAggregateDemand.................... 129
4.3.2 ThePriceLaw................................................... 131
4.3.3 TheEquilibriumMappings..................................... 133
4.4 ComparisonwithEconomieswithSingleLaborMarkets............. 137
4.5 SummaryandExtensions............................................... 140
4.6 Appendix................................................................ 143
4.6.1 Proofs............................................................ 143
4.6.2 AParametricExample.......................................... 149
4.6.3 ThePowerfulProducer......................................... 150
References..................................................................... 153
Chapter 1
Introduction
This book extends the family of AS–AD models by adding collective bargaining
to the labor market. In their standard form, AS–AD models assume competitive
markets. However, it is questionable whether labor markets should be treated
as competitive markets in economic modeling. Labor markets are subject to
substantial legislative regulation in many countries—which by itself might raise
doubtsabout whether these markets can be considered competitive—andthey are
highly shaped by strategically acting market participants. A prominent example
of this strategic interaction is collective bargaining between an employer (or an
employers’association)andalaborunionrepresentingitsmembersinnegotiations.
Since,asRoth(1985)pointsout,“the‘purebargainingproblem’isattheopposite
poleofeconomicphenomenafrom‘perfectcompetition’”,labormarketbargaining
is highly relevant in economics and it has been on the agenda since the seminal
paper by McDonald and Solow (1981). However, labor market configurations in
general and bargaining outcomes in particular are rarely confined to the labor
market.Theydirectlyaffectthefunctionalincomedistributionintheeconomy,i.e.
thepurchasingpowerofthedifferentincomegroups.Sincewageincomeaccounts
for a significant fraction of total consumption, the entire economy (in particular
the level of aggregate demand and the nominal price at which it is traded) is
affected by changeson the labor market. Therefore,the implications of collective
bargainingrequireananalysisoftheinteractingmarketsonamacroeconomiclevel.
However,these macroeconomiceffects—also called feedback or spillovers—have
beenmainlyignoredbytheliterature.Thisbookisintendedtocontributetoclosing
thisgap.
©SpringerNatureSwitzerlandAG2019 1
O.Claas,EssaysonWageBargaininginDynamicMacroeconomics,
LectureNotesinEconomicsandMathematicalSystems689,
https://doi.org/10.1007/978-3-319-97828-4_1