Can Long-Term Wage Accords Promote Growth and Employment?

Abstract

This chapter presents an innovation-driven endogenous growth model, in which firms and unions bargain over wages. We find that the degree of centralization of the bargaining structure plays a crucial rule in economic performance. Central bargaining, which incorporates the leapfrogging externality incorporated in firm-level bargaining, will yield lower rates of unemployment for a given rate of economic growth. The increase in labor resources will in turn also yield faster growth rates in a corporatist economy. Indeed, when unions focus on issues other than short-term wage increases, they may even outperform the non-unionized economy, because they can internalize the knowledge externality through long-term wage moderation accords.