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Most studies relating labour markets to macroeconomics and/or product market imperfections based on the monopoly union, right-to-manage or efficient bargain models of union-firm bargaining are insufficiently general to provide clear policy guidance, and many also adopt a representative sector approach and thereby assume away possible intersectoral differences in the nature of bargaining, union power and product market competition. In Discussion Paper No. 937, Research Fellow Huw David Dixon and Michele Santoni develop an open economy, general model of sequential bargaining in which the nature of bargaining and product market competition may differ across sectors. For simplicity, the product market is monopolistically competitive in the non-traded sector and perfectly competitive in the traded sector, while both have establishment unions whose bargaining strengths may differ. Although it is inappropriate to draw specific policy conclusions from such a stylized model, Dixon and Santoni find that this general equilibrium approach picks up intersectoral spillover effects that other models cannot capture. Greater union bargaining power over wages in either sector implies lower employment and output in both; greater union power over employment in either sector implies higher employment in both; and greater monopoly power in the non-traded sector implies lower employment in both. The nature and degree of imperfect competition in product and labour markets also determine policy's welfare effects in the short run (when trade need not balance), during which factors that may cause the equilibrium to diverge from the Walrasian outcome also imply that expansionary policies will yield greater welfare gains. Macroeconomic models are increasingly incorporating imperfect competition, but uncertainty about which results are robust and which are specific to the particular choice of modelling framework restricts their usefulness for policy. This general bargaining model nests such conventional approaches and thus allows the influence of bargaining structures and the effects of policy to be explored in greater detail. An Imperfectly Competitive Open Economy with Sequential Bargaining in the Labour Market Huw David Dixon and Michele Santoni Discussion Paper No. 937, April 1994 (HR) |