Demonstrate Piggy Back Luggage

Wage bargaining and equilibrium unemployment rate

Two explanations of the unemployment rate steady co-exist: the NAIRU (Non Accelerating Inflation Rate of Unemployment) as real wages remain stable and inflation, and the WS / PS Layard, Nickell and Jacman (1991). The latter refers to a rate resulting in two curves. The first (or wage setting WAS) shows the evolution of real wages as a function of decreasing unemployment rates. The second (price setting or PS) is an increasing function of P / W (nominal wage price) rate of unemployment. If the economy is getting better, unemployment will diminish inducing a decline in wages. The ratio of prices on wages will therefore increase, hence the growing relationship. Without spread over the model, we note also that the wage setting (WAS) is an application of nominal wages ensure a level of real wages sufficient which indicates that the curve is also an increasing function of the reservation wage (minimum wage for example, over the latter, the higher expectations in terms of cash salary will be important). Finally the price setting (PS) is the real wage that firms are willing to pay in light of the anticipated cost of labor and activity. The presentations, from in the subject.

Unlike the NAIRU, the WS / PS model assumes that agents involved in its mechanism maximize their interests. Also as part of a labor market, the negotiations between unions and contractors make it perfect. How to explain the game in salary negotiations? To address the problem, we will build on the work of John Nash (1950) on the strategic interdependence between two agents, each carrying the profit or loss. In addition, the development that follows, it will turn a balance to be cooperative or uncooperative.

In the first case, trade unions (iso-utility curves) -maximizing labor demand of the business and increase wages, while the company (iso-curves profit) will follow a rational logic of maximizing profit. Also, the higher the iso-utility curve will be away from the origin, the more unions will be satisfied. Over the iso-profit curve will be close behind, the better for business. In addition, the contract curve represent the optimal set of pairs, so it is not possible to improve the situation of one of two agents, without déteriorier the situation of the second. We present here a negotiating Pareto, within the meaning of the theorem of welfare. This is the optimum.

In the second case, the unions want to see increase wages, the company has the right to manage or fix the number of job I wanted. Thus, there would not necessarily point of tangency between two curves. If unions want high wages, the company will maximize its profit at point A in deciding a low demand for labor. In the opposite case, the company maximize its profit as much to point B. The situation is not Pareto.

So which model to choose? Blanchard and Philippon in 2004 shows that the decreasing relationship between unemployment and the quality of relationships salaried entrepreneurs tends to support the first mode of negotiation. But it is in the data, very limited because only 5% of companies are in negotiations on employment. Calfors Driffil in 1988 and shows that the mode of negotiation will depend on the degree of centralization of wage bargaining. If it is high, the union will emphasize the use and not pay, you end up in the first case. If it is low (decentralization), the surplus resulting from imperfect competition is zero, there is no negotiation possible. Also, in an intermediate position between these two situations where the degree of centralization of wage bargaining is neither too strong nor too weak, the sharing of the surplus would be to the benefit of wages and employment rather low. The relationship between the degree of bargaining centralization and unemployment rates can be represented graphically. Empirically, this relationship has rarely been verified.

What we learned then the WS-PS via these two cases of wage negotiations is that they depend on the market power of the company is its ability to generate profit in view of its situation on the market for goods and services . Plus the price elasticity of demand will be weak over the surplus will increase (example: if oil companies now - see the article by Paul Krugman ). Thus, the model and the studies of Blanchard and Giavazzi argue that in 2003 deregulating markets for goods and services is reflected in a decline in the unemployment rate. This liberalization and competitive deregulate the labor market which for example will tend to lower wages and therefore subject to the increasing function between limited level of negotiated wage and minimum wage.

The equilibrium unemployment depends on many factors, including the organization of the labor market upon which wage negotiations. Act on it is already a condition to better measure the rate of unoccupied active long term. A necessary first step in determining the policies of demand management in the fight against unemployment.

Illustration Dany