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Title:Economic growth with political lobbying and wage bargaining PDF Logo
Authors:Palokangas, Tapio
Issue Date:2009
Series/Report no.:IZA discussion papers 4091
Abstract:This paper examines an economy with a large number of industries, each producing a different good. Technological change follows a Poisson process where firms improve their productivity through investment in R&D. The less there are firms in the economy or the more they can coordinate their actions, the higher their profits. Labor is used in production or R&D. All workers are unionized and their wages depend on relative union bargaining power. If this power is high enough, then there is involuntary unemployment. Both workers and firms lobby the central planner of the economy which affects firms' and unions' market power. The main findings of the paper can be summarized the follows. The central planner can increase its welfare either (a) by increasing the level of income or (b) by speeding up economic growth. If (a) is more effective than (b), then the central planner eliminates union power altogether to have full employment. On the other hand, if (b) is more effective than (a), then the central planner supports labor unions to promote cost-escaping R&D.
Subjects:Economic integration
labor unions
market power
endogenous technological change
JEL:F15
J50
O40
Persistent Identifier of the first edition:urn:nbn:de:101:1-2009041444
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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