Unemployment and wages and centralization in wage bargaining: Some analytical explanations

Abstract. This paper discusses the relation between centralization in union bargaining and the wage-(un)employment mix. Empirical findings point to a positive relation between the degree of coordination in union bargaining and wages till a certain point, and a negative one afterwards. A theoretical argument fits such evidence, relying on the mechanism behind the free-rider problem in union bargaining. If earnings taxes were introduced to finance the unemployment insurance fund, that relation could change. The impact on the equilibrium wages and multipliers in the several scenarios is briefly explored. Indirectly, an explanation for the shape of the empirical “wage curve” is also derived. Keywords. Monopoly unions, Wage determination models, Union bargaining, Corporatism, Wage curve, Unemployment insurance. JEL. J51, J65, E24, E62, H55, H39, D42, D43.