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Title:Wage bargaining in an optimal control framework: A dynamic version of the right-to-manage model PDF Logo
Authors:Guerrazzi, Marco
Issue Date:2007
Series/Report no.:Open Discussion Papers in Economics, The Open University 61
Abstract:This paper aims to represent wage bargaining as an optimal control problem. Specifically, by assuming that employment follows a stock adjustment principle towards the level that maximises profits, i.e., towards labour demand, we build an intertemporal optimising model in which the real wage is continuously set by an infinitely-lived omniscient arbitrator that is called in to resolve the dispute between the workers and the employers. Our theoretical proposal allows to show that unions may speed up the adjustment to equilibrium and it suggests that standard (static) models may understate the distortions implied by wage bargaining.
Subjects:Wage Bargaining
Optimal Control Theory
Right-to-Manage Model
Numerical Solutions
JEL:C61
E24
Document Type:Working Paper
Appears in Collections:Open Discussion Papers in Economics, The Open University

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