Affordable Access

Download Read

Wage Setting and the (Non-) Neutrality of Monetary Policy

  • 330 Wirtschaft


Oligopoly6.dvi Union Wage Bargaining and the Incentive to Innovate∗ Jo¨rg Lingens† 22nd March 2006 Abstract We analyse the impact of union wage bargaining on the firm’s in- centive to invest into research. In a heterogenous Cournot duopoly, each firm invests resources into a patent race similar to Reinganum (1983) and bargains the wage with a labour union. Union wage bar- gaining affects the incentive to innovate through its effect on the profit situation of the firm. Besides the hold-up and the strategic effect which have been analysed in the literature, we are able to identify a third effect of union wage bargaining: its impact on the Arrow effect. This effect is positive for the research incentive. Solving the model numerically reveals that in sum, union wage bargaining decreases the incentive for doing research. This result is independent of the bargain- ing institution (right-to-manage or efficient bargaining) or the degree of product heterogeneity. JEL: J51, O31, L51. Keywords: Union Wage Bargaining, Arrow effect, Right-to-manage, Efficient Bargaining ∗For helpful comments I would like to thank Lutz Arnold, Jo¨rg Heining, Ralf Mu¨ller, Frank Neumann and participants at the Lunch Seminar of the University of Regensburg. All errors are, of course, mine †University of Regensburg, [email protected], Tel.: ++49 941 943 2722 March 22, 2006 1 1 Introduction What is the impact of union wage bargaining on the firm’s incentive to invest into R&D? Obviously this question is important when we want to understand and judge the overall impact of unionisation on the ”state” of the economy. However, the answer to this question naturally differs depending on whether you ask a labour union or a firm. Labour unions will put forward that wage bargaining increases the incen- tive for the firm to invest into research. High wages increase the revenue of introducing a labour saving technology and thus spur R&D.1 On the contrary, firms argue that the wage increase decre

There are no comments yet on this publication. Be the first to share your thoughts.