TRADE UNIONS, WAGE FORMATION AND MACROECONOMIC STABILITY

TRADE UNIONS, WAGE FORMATION AND MACROECONOMIC STABILITY

TOPICS IN CONTEMPORARY ECONOMIC ANALYSIS Edited by Peter Bohm and Allen V. Kneese THE ECONOMICS OF ENVIRONMENT Edited by Jan Herin, Assar Lindbeck and Johan Myhrman FLEXIBLE EXCHANGE RATES AND STABILIZATION POLICY Edited by Steinar Str0m and Lars Werin TOPICS IN DISEQUILIBRIUM ECONOMICS Edited by Steinar Str0m and Bjorn Thalberg THE THEORETICAL CONTRIBUTIONS OF KNUT WICKSELL Edited by Steinar Str0m MEASUREMENT IN PUBLIC CHOICE Edited by Lars Matthiessen and Steinar Str0m UNEMPLOYMENT: MACRO AND MICRO-ECONOMIC EXPLANATIONS Edited by Lars Matthiessen THE IMPACT OF RISING OIL PRICES ON THE WORLD ECONOMY Edited by Lars Calmfors LONG-RUN EFFECTS OF SHORT-RUN STABILIZATION POLICY Edited by Finn R. F!llrsund TOPICS IN PRODUCTION THEORY Edited by Finn R. F0rsund and Seppo Honkapohja LIMITS AND PROBLEMS OF TAXATION Edited by Lars Calmfors and Henrik Horn TRADE UNIONS, WAGE FORMATION AND MACROECONOMIC STABILITY Series Standing Order If you would like to receive future titles in this series as they are published, you can make use of our standing order facility. To place a standing order please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address and the name of the series. Please state with which title you wish to begin your standing order. (If you live outside the UK we may not have the rights for your area, in which case we will forward your order to the publisher concerned.) Standing Order Service, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire, RG212XS, England

TRADE UNIONS, WAGE FORMATION AND MACROECONOMIC STABILITY Edited by Lars Calmfors Associate Professor and Senior Research Fellow Institute for International Economic Studies University of Stockholm and Henrik Horn Research Fellow Institute for International Economic Studies University of Stockholm M MACMILLAN

The Scandinavian Journal of Economics, 1985, 1986 Softcover reprint of the hardcover 1st edition 1986 978-0-333-40963-3 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright Act 1956 (as amended). Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. This collection was originally published in TheScandinavianJournalofEconomics, Vol. 87,1985, No.2 First published in book form 1986 by TilE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 2XS and London Companies and representatives throughout the world British Library of Cataloguing in Publication Data Trade unions, wage formation and macroeconomic stability.-(topics in contemporary economic analysis) 1. Economic stabilization 2. Wages 3. Tradeunions I. Calmfors, Lars II. Hom, Henrik Ill. Series 331.2'15 HB3730 ISBN 978-1-349-08598-9 ISBN 978-1-349-08596-5 (ebook) DOI 10.1007/978-1-349-08596-5

Contents Contributors' Affiliations vii Trade Unions, Wage Formation and Macroeconomic Stability-An Introduction. By Lars Calmfors............... 1 Part I. Microeconomic Underpinnings The Economic Theory of Trade Unions: An Introductory Survey. By Andrew J. Oswald 18 Comment by George Johnson.................... 52 Wages and Employment under Trade Unionism: Microeconomic Models and Macroeconomic Applications. By John Pencavel 55 Comments by Andrew J. Oswald and Berti/ Holmlund..... 84 Part II. Centralized Wage Setting Classical Unemployment, Accommodation Policies and the Adjustment of Real Wages. By Lars Calmfors and Henrik Horn.. 92 Comments by Lars Jonung and Richard Layard 120 Workers versus Government-Who Adjusts to Whom? By Tor Hersoug............................... 128 Comments by Thorvaldur Gylfason and Henryk Kierzkowski... 151 Macroeconomic Stabilization Policy and Trade Union Behavior as a Repeated Game. By John Driffi/1................ 158 Comments by Stanley Fischer and Matti Pohjola... 185 Union Militancy, External Shocks and the Accommodation Dilemma. By Hans Tson Soderstrom.................. 193 Comments by Guido de Bruyne and EdmundS. Phelps... 210

vi Contents Part Ill. Decentralized Wage Setting Counterinflationary Policy in a Unionised Economy with Nonsynchronised Wage Setting. By Richard Jackman... 215 Comments by John Fender and Thorvaldur Gylfason....... 237 Dynamics of Unemployment, Vacancies and Real Wages with Trade Unions. By Christopher Pissarides............. 244 Comments by Masahiko Aoki and EdmundS. Phelps... 262 Insiders and Outsiders in Wage Determination. By Robert Solow 269 Comments by Henryk Kierzkowski and Dennis Snower... 287 Part IV. Empirical Applications Wage Gaps, Factor Shares and Real Wages. By John McCallum 294 Comment by Eskil Wadensjo. 318

Contributors' Affiliations Masahiko Aoki Lars Calmfors Guido de Bruyne John Driffill John Fender Stanley Fischer Thorvaldur Gylfason TorHersoug Bertil Holmlund HenrikHorn Richard Jackman George Johnson LarsJonung Henryk Kierzkowski Richard Layard John McCallum Andrew J. Oswald John Pencavel EdmundS. Phelps Christopher Pissarides Matti Pohjola Dennis Snower Stanford University, Stanford, CA, USA Institute for International Economic Studies, Stockholm, Sweden University of Louvain, Belgium University of Southampton, England University of Lancaster, England Massachusetts Institute of Technology, Cambridge, MA,USA University of Iceland, Reykjavik, Iceland University of Oslo, Norway Industrial Institute for Economic and Social Research, Stockholm, Sweden Institute for International Economic Studies, Stockholm, Sweden London School of Economics, London, England University of Michigan, Ann Arbor, MI, USA University of Lund, Sweden Graduate Institute oflnternational Studies, Geneva, Switzerland London School of Economics, London, England University of Quebec, Montreal, Quebec, Canada Institute of Economics and Statistics and StJohn's College, Oxford, England Stanford University, Stanford, CA, USA Columbia University, New York, NY, USA London School of Economics, London, England University of Helsinki, Finland Birkbeck College, University of London, England Hans Tson Soderstrom Business and Social Research Institute, Stockholm, Sweden Robert M. Solow Eskil Wadensjo Massachusetts Institute of Technology, Cambridge, MA,USA Institute for Social Research, Stockholm, Sweden