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- Title
Union Rivalry and Wages: An Oligopolistic Approach.
- Authors
Gylfason, Thorvaldur; Lindbeck, Assar
- Abstract
The aim of this paper is to present a theory of wages based on an application of oligopoly theory to labor unions. <BR> As is well known, Keynes argued forcefully in his General Theory that insufficient aggregate demand and inflexibility of wages were primarily responsible for the persistent unemployment problem of the 1930s, not in the sense that nominal wage reductions would necessarily alleviate the unemployment, but rather in the sense that there was no automatic tendency for nominal wages to clear labor markets. Provided that wages were inflexible in nominal terms, Keynes was able to show that monetary and fiscal policies could be used to stimulate aggregate demand and therewith output and employment by lowering (expected) real wages through price inflation. <BR> It needs to be emphasized that nominal wage stickiness of the type that Keynes discussed does not necessarily imply irrational behavior or money illusion. In particular, as Keynes maintained, if workers are concerned about wage differentials, rationality does not require them to insist on full compensation for all price increases unless they expect all other workers to be fully compensated. In the words of Keynes himself,[1] <BR> any individual or group of individuals who consent to a reduction of money-wages relatively to others, will suffer a relative reduction in real wages, which is a sufficient justification for them to resist it. On the other hand it would be impracticable to resist every reduction of real wages, due to a change in the purchasing-power of money which affects all workers alike. [Keynes, 1936, p. 14] <BR> The present paper may be viewed as an attempt to deduce and formalize this idea of Keynes by developing a microeconomic theory of labor union behavior Elsewhere, we have attempted to incorporate this theory of wage formation and union rivalry into a broad macroeconomic framework, on the one hand exploring some issues pertaining to the political economy of cost inflation...
- Subjects
WAGES; INCOME; LABOR unions; UNEMPLOYMENT; PRICE inflation; POLITICAL science
- Publication
Economica, 1984, Vol 51, Issue 202, p129
- ISSN
0013-0427
- Publication type
Article
- DOI
10.2307/2554205