Abstract
A model of trade-union determined wages is developed which provides an explanation of underemployment based on optimizing behavior. It is shown that fiscal policy will in general affect employment under perfect foresight and immediate wage flexibility. Future consequences of short-run stabilization policies are discussed. Ratchet effects with respect to government expenditure and game-theoretic interdependence between government and trade union behavior are emphasized. If the trade union takes short-run policy measures in order to increase employment as an indication of an employment stabilization rule, the future behavior of the trade union changes and the result may be a decrease in long-run employment.
I would like to thank Lars E. O. Svensson for helpful discussions on the technical parts of the paper. I have also benefited from comments by M. June Flanders, Thorvaldur Gylfason, Michael Hoel, Henrìk Horn, Assar Lindbeck, Felix Nordström, Andrew J. Oswald, Torsten Persson, Assaf Razin and Hans Tson Söderström. I am grateful to Gunnel Löfberg for typing the manuscript with great care and patience.
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© 1983 The Scandinavian Journal of Economics
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Calmfors, L. (1983). Employment Policies, Wage Formation and Trade Union Behavior in a Small Open Economy. In: Calmfors, L. (eds) Long-Run Effects of Short-Run Stabilization Policy. Scandinavian Journal of Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06349-9_16
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DOI: https://doi.org/10.1007/978-1-349-06349-9_16
Publisher Name: Palgrave Macmillan, London
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