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Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources

Author

Listed:
  • Xiaoming Cai

    (VU University Amsterdam)

  • Pieter A. Gautier

    (VU University Amsterdam)

  • Makoto Watanabe

    (VU University Amsterdam)

Abstract
This discussion paper led to a publication in Labour Economics . An advantage of collective wage agreement is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached because more productive firms (for a particular worker type) can no longer signal this by posting higher wages. Specifically, we consider a search model with two sided heterogeneity and on-the-job search. We compare the most favorable case of a collective wage agreement (i.e. the wage that a planner would choose under the constraint that all firms in a sector-occupation cell must offer the same wage) with the case without collective wage agreement. We find that collective wage agreements are never desirable if firms can commit ex ante to a wage and only desirable if firms cannot commit and the relative efficiency of on the job search to off- the job search is less than 20%. This result is hardly sensitive to the bargaining power of workers. Empirically we find both for the Netherlands and the US that this value is closer to 50%.

Suggested Citation

  • Xiaoming Cai & Pieter A. Gautier & Makoto Watanabe, 2012. "Collective versus Decentralized Wage Bargaining and the Efficient Allocation of Resources," Tinbergen Institute Discussion Papers 12-086/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20120086
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    References listed on IDEAS

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    Cited by:

    1. Evangelia Papapetrou & Pinelopi Tsalaporta, 2018. "Macroeconomic outcomes, collective bargaining and intersectoral productivity differentials: a panel approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(4), pages 765-799, November.
    2. Francesco Palma & Yann Thommen, 2020. "Employment Protection Reform in European Labor Markets: The Collective Bargaining Regime Matters," De Economist, Springer, vol. 168(4), pages 541-575, December.
    3. Gautier, Pieter A. & Moraga-González, José L., 2018. "Search intensity, wage dispersion and the minimum wage," Labour Economics, Elsevier, vol. 50(C), pages 80-86.
    4. García Martínez, José Ramón & Sorolla, Valeri, 2019. "When is there more employment, with individual or collective wage bargaining?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-25.
    5. García Martínez, José Ramón & Sorolla i Amat, Valeri, 2017. "When is there more employment, with individual or collective wage bargaining?," Economics Discussion Papers 2017-87, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Collective wage agreements; on-the-job search; efficiency;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J62 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Job, Occupational and Intergenerational Mobility; Promotion
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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