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- Title
BARGAINING AND WAGE RESISTANCE IN AN OPEN MACROECONOMIC MODEL.
- Authors
Ellis, Christopher J.; Fender, John
- Abstract
This paper develops a model of an open economy in which wages and employment are determined by bargaining between firms and unions. It can be regarded as an extension of an earlier paper (Ellis and Fender, 1985) to an open economy; this allows us to investigate a number of contemporary issues. In particular, we shall explore some aspects of wage resistance -- the tendency for nominal wages to rise so as to offset either partially or totally any rise in the aggregate price level. One of the aims of this paper will be to endogenise wage resistance in an open-economy model using a rigorous bargaining approach. The notion that union behaviour gives rise to real wage resistance is not novel (see, for example, Eichengreen, 1983); however, to our knowledge this has never been presented formally in an open-economy model. Our second main aim is to introduce wage resistance, in the manner discussed above, into an open macroeconomic model with rationing. Several papers have developed open-economy models which explicitly incorporate the constraints which arise when some markets fail to clear (for a comprehensive discussion of the literature see Cuddington et al. 1984); however, none of this work incorporates wage resistance. We shall also analyse the effects of changes in government spending (which can be regarded as an exogenous source of demand). The economy is characterised by a number of different regimes, so some comparative statics results will be regime-specific. The more interesting results concern the effects of changes in the terms of trade. There is often partial wage resistance to a terms-of-trade deterioration. However, one regime exhibits complete wage resistance (real-wage rigidity), and there are circumstances in which either the real wage rises (super-wage resistance) or the nominal wage falls. Employment can either rise or fall with a deterioration, whereas the effects on the balance of trade are ambiguous in three regimes and negative in the remaini...
- Subjects
LABOR market; LABOR supply; EMPLOYMENT; LABOR; WAGES; ECONOMICS
- Publication
Economic Journal, 1987, Vol 97, Issue 385, p106
- ISSN
0013-0133
- Publication type
Article
- DOI
10.2307/2233325