University of Helsinki
Abstract. Consider an economy where oligopolists employ skilled and unskilled labour in production and escape production costs by devoting skilled labour to R&D. Employers and workers bargain over wages and lobby the local policy maker that determines union bargaining power. The main results are the following. When the elasticity of factor substitution exceeds the elasticity of product substitution, the labour markets are deregulated. When labour market policy is left at the local level in an otherwise integrated economy, the likelihood of labour market deregulation increases. This result explains the past development of declining union bargaining power in wage settlement.
Earlier version: The Political Economy of Labour Market Regulation with R&D. HECER Discussion Paper No. 375 (2013)
Presented in:
DEGIT Conference, Nasville (TN), USA
13th Viennese Workshop on Optimal Control and Dynamic Games, Wien, Austria