Cai, X., Gautier, P.A., Teulings, C.N. and Watanabe, M.

Collective versus decentralized wage bargaining and the efficient allocation of resources

Labour Economics

Vol. 26 pp. 34-42 (2013)

Abstract: In a search model with two sided heterogeneity and on-the-job search, we compare collective bargaining agreements (CBA) with a decentralized bargaining outcome case. Under CBA, a union chooses a pay-scale schedule and the firm can select a wage from this pay scale after observing match quality. An advantage of collective bargaining agreements is that search and business-stealing externalities can be internalized. A disadvantage is that it takes more time before an optimal allocation is reached. What the most desirable system is, depends on worker bargaining power (Î²) and the relative efficiency of on- versus off- the job search. We find both for the Netherlands and the US that as long as Î² lies between 0.1 and 0.7, CBA is less desirable

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Publisher's Link: http://www.sciencedirect.com/science/article/pii/S0927537113001231