Classical Unemployment, Accommodation Policies and the Adjustment of Real Wages

Abstract

A model of wage formation and stabilization policy in economies with strong trade unions is developed. The analysis provides a theoretical underpinning for the assertion that accommodation policies may cause wage inflation and ultimately reduce employment. Various methods of accomplishing a real wage adjustment are discussed: (I) a policy of complete nonaccommodation; (2) continued accommodation policies but with lower employment targets; (3) social contracts; and (4) tax-based incomes policies (TIP). These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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