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Productivity shocks in a union-duopoly model

Author

Listed:
  • António Brandão

    (CEF.UP and Faculdade de Economia do Porto.)

  • Joana Pinho

    (CEF.UP and Faculdade de Economia do Porto. Toulouse School of Economics.)

Abstract
We consider an industry where firms are asymmetric in terms of productivity. Wages and employment are determined at the firm-level and are the result of sequential bargaining between unions and firms, with wages being negotiated first. We characterise the equilibrium and compare the outcomes in the two firms (wages, employment and surplus of all economic agents). A productivity shock affecting the most efficient firm is socially desirable, by increasing the surplus of consumers, workers and firms. The same may not be true when the productivity shock affects the least efficient firm. In this case, the consumers’ gain may not be enough to outweigh the losses in aggregate worker surplus and in the industry profit.

Suggested Citation

  • António Brandão & Joana Pinho, 2016. "Productivity shocks in a union-duopoly model," FEP Working Papers 576, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:576
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    More about this item

    Keywords

    Asymmetric productivity; Decentralised bargaining; Duopoly; Productivity shocks;
    All these keywords.

    JEL classification:

    • J53 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Labor-Management Relations; Industrial Jurisprudence
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D60 - Microeconomics - - Welfare Economics - - - General

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