Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80869
Authors: 
Goerke, Laszlo
Hillesheim, Inga
Year of Publication: 
2013
Series/Report no.: 
IAAEU Discussion Paper Series in Economics 10/2013
Abstract: 
Status considerations with respect to consumption give rise to negative externalities because individuals do not take into account that their decisions affect the relative consumption position of others. Further, status concerns create incentives for excessive labour supply in competitive markets. We show that trade unions which are unable to internalise the externality can nevertheless mitigate the resulting distortion. The reason is that wages above the market clearing level are only feasible if people work less and, therefore, fewer hours than in a competitive market. Accordingly, the theoretical model establishes that trade unions can have a welfareenhancing role in a world with relative consumption effects.
Subjects: 
externality
hours of work
relative consumption
trade union
JEL: 
D62
J22
J51
Document Type: 
Working Paper

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