Wage bargaining, unemployment and growth

Abstract

This paper examines how wage bargaining impinges unemployment and growth. In the basic model wage bargaining determines unemployment and is not influenced by growth. An increase in unemployment benefits increases unemployment and reduces capital accumulation. In a neoclassical framework the long run effect is a reduction of income per head. In contrast the wage is not affected. With endogenous growth the wage level is increased, but the growth rate is reduced. Only if growth increases labour market flows, it has an influence on wage bargaining. Then an increase in growth might increase unemployment. An increase in unemployment reduces growth.

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