Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/21254 
Year of Publication: 
2001
Series/Report no.: 
IZA Discussion Papers No. 394
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We examine wage-bargaining in a two-sector economy when employers and labor unions in each sector are not always aware of all general equilibrium feedback effects. We show analytically that if agents only consider labor demand effects, low real wages and low unemployment result. With an intermediate view, i.e. when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are considered at once, low real wages and low unemployment again result. The assumption that unions and employers? federations are not able to incorporate all feedback effects from other sectors may explain the persistence of high unemployment in Europe.
Subjects: 
Sectoral wage-bargaining
awareness of general equilibrium effects
unemployment
JEL: 
D58
E24
L13
J60
Document Type: 
Working Paper

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