University of HelsinkiAbstract. This paper examines the centralization of collective bargaining where unions are Stackelberg leaders, firms invest in capital and purchase intermediate goods from each other, and where learning-by-investment causes persistent technological change. The main finding is the following. Provided that the elasticity of substitution between labor and intermediate inputs is not very high or very low, bargaining at the central or local level yields higher employment as well as a higher rate of investment and growth than bargaining at the medium level of centralization.
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