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Two-Stage Bargaining with Coverage Extension in a Dual Labour Market

Author

Listed:
  • Mark A. Roberts
  • Karsten Stæhr
  • Torben Tranæs
Abstract
This paper studies two-stage bargaining in a simple general equilibrium model with a dual labour market. We analyse the case where agreements reached at the central level in the union sector extend beyond this sector. Conditions are identified under which firms and unions have a commonality of interest in extending coverage of a minimum wage to the non-union sector of the economy. In many countries, labour markets comprise a primary sector with high non-market clearing wages and job queues, and a secondary sector with market clearing. The latter arises endogenously in our model: it is optimal for the union sector to impose a market clearing wage on the non-union sector. This suggests that coverage extension can increase welfare.

Suggested Citation

  • Mark A. Roberts & Karsten Stæhr & Torben Tranæs, "undated". "Two-Stage Bargaining with Coverage Extension in a Dual Labour Market," EPRU Working Paper Series 97-28, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:epruwp:97-28
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    References listed on IDEAS

    as
    1. Ian M. McDonald & Robert M. Solow, 1985. "Wages and Employment in a Segmented Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1115-1141.
    2. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
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    4. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
    5. Mark A. Roberts, & Karsten Staehr Torben Tranaes,, 1997. "Two-Stage Bargaining and Minimum Wages in a Dual Labour Market," Discussion Papers 97/4, University of Nottingham, School of Economics.
    6. Juan Dolado & Francis Kramarz & Steven Machin & Alan Manning & David Margolis & Coen Teulings, 1996. "The Economic Impact of Minimum Wages in Europe," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00353896, HAL.
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    8. Neumark, David & Wascher, William, 1995. "Minimum-Wage Effects on School and Work Transitions of Teenagers," American Economic Review, American Economic Association, vol. 85(2), pages 244-249, May.
    9. Alan Manning, 1995. "How Do We Know That Real Wages Are Too High?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 1111-1125.
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    Cited by:

    1. Wapler, Rüdiger, 2000. "Unions, monopolistic competition and unemployment," Tübinger Diskussionsbeiträge 180, University of Tübingen, School of Business and Economics.
    2. Haucap, Justus & Pauly, Uwe & Wey, Christian, 2001. "Collective wage setting when wages are generally binding An antitrust perspective," International Review of Law and Economics, Elsevier, vol. 21(3), pages 287-307, September.
    3. P. Kapopoulos & P. Papadimitriou, 2004. "Preliminary Evidence on Wage Setting in Greek Manufacturing," LABOUR, CEIS, vol. 18(1), pages 161-173, March.
    4. Dittrich, Marcus, 2007. "Minimum Wages and Union Bargaining in a Dual Labour Market," Dresden Discussion Paper Series in Economics 13/07, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    5. Marcus Dittrich, 2010. "Minimum Wages and Unemployment Benefits in a Unionized Economy: A Game-Theoretic Approach," Annals of Economics and Finance, Society for AEF, vol. 11(2), pages 209-229, November.
    6. Wapler, Rüdiger, 2001. "Unions, efficiency wages, and unemployment," Tübinger Diskussionsbeiträge 210, University of Tübingen, School of Business and Economics.

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    More about this item

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General

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