The effects of union wage-settings on firms’ production factor decisions

Abstract

This study is concerned with the development of a theoretical model of the interaction between firms and trade union in determining wages and employment. In a two-step process the union and firm determine wages and capital stock, conditional on which the firm decides on production factors of employment, working hours and capital operating time. This paper suggests the use of a panel data approach applied to manufacturing data. A dynamic model is specified in which the optimal levels of the variables of interest and the speed of their adjustments are modelled in terms of observable policy variables.

Notes

¹ For surveys see Dertouzos and Pencavel (1981) and Oswald (1982a, 1982b, 1985).

² For a comparison and discrimination between the models see MaCurdy and Pencavel (1986).

³ See Oswald (1982a, 1982b, 1985), Grossman (1983) and Lawrence and Lawrence (1985).

⁴ For a selection of papers on the issues discussed above see Dertouzos and Pencavel (1981), Calmfors (1982), Nickell and Andrews (1983), Pencavel (1984, 1985), McDonald and Solow (1981), Horn and Svensson (1986) and Nickell (1986).

⁵ The distinguishing feature of the Holm et al. (1994) model compared to the Pencavel and Holmlund (1988) is that the former was augmented with respect to capital stock instead of work hours.