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Bayindir-Upmann, Thorsten
Gerber, Anke
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 941
Authors who consider efficient bargaining on the labor market predominantly focus on the Nash-bargaining solution. It seems, however, that actual labor market negotiations between an employers' federation and a labor union are often characterized by mutual concessions, which may be accounted for by an application of the Kalai-Smorodinsky solution to labor-market negotiations. Correspondingly, we investigate how a government can influence the equilibrium on the labor market by changing the reservation wage when the equilibrium is determined by the Kalai-Smorodinsky solution. We find that the induced employment effects may differ substantially when compared with the Nash bargaining solution. Hence, substituting the Kalai-Smorodinsky by the Nash bargaining solution is not innocuous, when actual negotiations are characterized by mutual incremental concessions.
labor market negotiations
Kalai-Smorodinsky solution
Nash-bargaining solution
reservation wage
fiscal and social policies
Document Type: 
Working Paper

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