Academic journal article Atlantic Economic Journal

Unionized Wages and Employment

Academic journal article Atlantic Economic Journal

Unionized Wages and Employment

Article excerpt

Unionized Wages and Employment

It is well-known in almost all macroeconomic textbooks that employment (output) will decrease as workers are successful in pushing unionized wages to a higher level. This note reevaluates this belief by using the characteristics of the Cebula [SEJ, October 1976] model, i.e., both investment and consumption functions are positively related to the interest rate. Let: y = E(y, i) + G, 1 > Ey > 0, Ei > 0 ; (1) L(y, i) = M/p, Ly > 0, Li < 0 ; (2) y = S(w/p), Sw/p < 0 ; (3) where: y = real output; E = expenditure on consumption and investment; i = interest rate; G = government expenditure; M = nominal money supply; p = domestic price; w = money wages; and S = supply of output.

Equations (1) and (2) express the economy's IS and LM curve, respectively. Equation (3) is the aggregate supply function, which is derived by assuming that money wages are set by the labor union and actual employment is determined by labor demand. One point that should be noticed is that Ei > 0 is consistent with the Cebula specification.

The above three equations can simultaneously determine the three variables: y, i, and p. Totally differentiating (1)-(3) and using Cramer's rule: where D = wSw/p [Li(1 - Ey) + EiLy] - EiM. …

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