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Centralised Labour Market Negotiations: Strategic Behaviour Curbs Employment

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This paper contributes to the analysis of centralised versus decentralised labour market negotiations. Applying the familiar Nash bargaining solution, we show that centralised negotiations lead to a lower employment level but to a higher wage rate than decentralised labour market bargaining. While this is an important theoretical result on its own, it has important effects for both empirical labour market research and labour market policies. Also, this result counters the critique that efficient negotiations result in employment levels exceeding the competitive level. (JEL: C78, J52, D41)
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Keywords: Nash bargaining solution; centralised and decentralised labour market negotiations; efficient bargains; endogenous output price; wage and employment effects

Appeared or available online: Fri May 12 21:30:00 UTC 2017

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