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COLLECTIVE BARGAINING, AWARENESS OF GENERAL EQUILIBRIUM EFFECTS, AND UNEMPLOYMENT

Authors

  • Hans Gersbach,

    1. CER-ETH – Center of Economic Research at ETH Zurich and CEPR, Switzerland; Aquila Capital, Frankfurt am Main, Germany
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  • Achim Schniewind

    1. CER-ETH – Center of Economic Research at ETH Zurich and CEPR, Switzerland; Aquila Capital, Frankfurt am Main, Germany
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    • We would like to thank Martin N. Baily, Volker Hahn, Christoph M. Schmidt, George Sheldon, Robert Solow, Jan Wenzelburger, conference participants at the annual meeting of the German Economic Association and the annual meeting of the European Economic Association (EEA) in Lausanne, seminar participants in Heidelberg and Bonn, three referees, and the editor for their valuable comments. Please address correspondence to: Hans Gersbach, CER-ETH – Center of Economic Research at ETH Zurich and CEPR, Zuerichbergstrasse 18, 8092 Zurich, Switzerland. E-mail: hgersbach@ethz.ch.


  • Manuscript received March 2009; revised February 2011.

Abstract

We explore the significance of general equilibrium feedback effects for wage-bargaining. We examine a two-sector economy and show that if agents only consider labor demand effects low real wages and low unemployment are the consequences. With an intermediate view, i.e., when partial equilibrium effects within a sector are taken into account, high real wages and unemployment result. If all general equilibrium effects are perceived simultaneously, we once again obtain a situation with low wages and unemployment. The results may explain why unemployment is high in some European countries.

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