Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/76102 
Year of Publication: 
2002
Series/Report no.: 
CESifo Working Paper No. 654
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We investigate the interaction between labour and credit market imperfections for the determination of equilibrium unemployment within the framework of the right-tomanage approach. Our analysis highlights the critical role of labour mobility for the evaluation of the employment implications of intensified credit market competition. Without labour mobility increased bargaining power of banks will have adverse employment effects. However, with a labour force mobile across industries this relationship is frequently reversed if firms adopt profit sharing schemes. If employment at a fixed wage complements unemployment benefits to constitute the trade union's relevant outside option, intensified credit market competition will increase equilibrium unemployment. This relationship is shown to hold also for cases where the outside option incorporates profit sharing schemes as long as the labour market imperfections - measured by the relative bargaining power of the trade unions - are sufficiently strong.
Subjects: 
wage and loan bargaining
compensation systems
equilibrium unemployment
outside options.
Document Type: 
Working Paper
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