Cyclicality of Wages and Union Power

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared between the worker and the firm. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I show that under collective wage bargaining, the worker share is endogenous and counter-cyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus, and this mechanism delivers endogenous wage rigidity. The model thus offers new insights into two business cycle features: the union wage premium fluctuates counter-cyclically, and employment is more cyclical but less persistent when wages are collectively bargained.
Original languageEnglish
JournalLabour Economics
Volume48
Pages (from-to)1-22
ISSN0927-5371
DOIs
Publication statusPublished - Oct 2017

Keywords

  • Search and matching
  • Trade unions
  • Cycles

Cite this

@article{80c9fe5d10b14f84b1ebace9dd912d5b,
title = "Cyclicality of Wages and Union Power",
abstract = "This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared between the worker and the firm. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I show that under collective wage bargaining, the worker share is endogenous and counter-cyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus, and this mechanism delivers endogenous wage rigidity. The model thus offers new insights into two business cycle features: the union wage premium fluctuates counter-cyclically, and employment is more cyclical but less persistent when wages are collectively bargained.",
keywords = "Search and matching, Trade unions, Cycles, Search and matching, Trade unions, Cycles",
author = "Anna{\"i}g Morin",
year = "2017",
month = "10",
doi = "10.1016/j.labeco.2017.06.001",
language = "English",
volume = "48",
pages = "1--22",
journal = "Labour Economics",
issn = "0927-5371",
publisher = "Elsevier BV North-Holland",

}

Cyclicality of Wages and Union Power. / Morin, Annaïg.

In: Labour Economics, Vol. 48, 10.2017, p. 1-22.

Research output: Contribution to journalJournal articleResearchpeer-review

TY - JOUR

T1 - Cyclicality of Wages and Union Power

AU - Morin, Annaïg

PY - 2017/10

Y1 - 2017/10

N2 - This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared between the worker and the firm. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I show that under collective wage bargaining, the worker share is endogenous and counter-cyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus, and this mechanism delivers endogenous wage rigidity. The model thus offers new insights into two business cycle features: the union wage premium fluctuates counter-cyclically, and employment is more cyclical but less persistent when wages are collectively bargained.

AB - This paper examines how trade unions shape the volatility of wages over the business cycle. I present a dynamic stochastic model of the labor market that integrates two main features: search frictions and trade unions. Because of search frictions, each job match yields an economic surplus that is shared between the worker and the firm. Therefore, I can decompose the volatility of wages into two components: the volatility of the match surplus and the volatility of the worker share of the surplus. Starting from the unions' objective function, I show that under collective wage bargaining, the worker share is endogenous and counter-cyclical. Consequently, when the economy is hit by a shock, the dynamics of the worker share partially counteract the dynamics of the match surplus, and this mechanism delivers endogenous wage rigidity. The model thus offers new insights into two business cycle features: the union wage premium fluctuates counter-cyclically, and employment is more cyclical but less persistent when wages are collectively bargained.

KW - Search and matching

KW - Trade unions

KW - Cycles

KW - Search and matching

KW - Trade unions

KW - Cycles

UR - https://sfx-45cbs.hosted.exlibrisgroup.com/45cbs?url_ver=Z39.88-2004&url_ctx_fmt=info:ofi/fmt:kev:mtx:ctx&ctx_enc=info:ofi/enc:UTF-8&ctx_ver=Z39.88-2004&rfr_id=info:sid/sfxit.com:azlist&sfx.ignore_date_threshold=1&rft.object_id=954926242484

U2 - 10.1016/j.labeco.2017.06.001

DO - 10.1016/j.labeco.2017.06.001

M3 - Journal article

AN - SCOPUS:85020273482

VL - 48

SP - 1

EP - 22

JO - Labour Economics

JF - Labour Economics

SN - 0927-5371

ER -