Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/305199 
Year of Publication: 
2024
Series/Report no.: 
GLO Discussion Paper No. 1515
Publisher: 
Global Labor Organization (GLO), Essen
Abstract: 
In this paper, I explore the relationship between wage bargaining and capital accumulation by developing a differential game in which a monopolistic union sets the wage of its members by taking as given the optimal employment strategy of a representative firm and the way in which capital is evaluated over time. Under the assumption that investment amounts to a constant share of produced output, I show that a meaningful open-loop Stackelberg equilibrium requires the union to be more patient than the firm. Moreover, relying on some numerical simulations, I show that although adjustments towards the steady-state equilibrium occur through damped oscillations, after an initial period of decline, the model predicts a stable union wage premium.
Subjects: 
Monopoly union model
Capital accumulation
Binding wage contracts
Differential games
Open-loop Stackelberg equilibrium
JEL: 
J31
J51
J52
Document Type: 
Working Paper

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