Union, efficiency of labour and endogenous growth

Bhattacharyya, Chandril and Gupta, Manash Ranjan (2015): Union, efficiency of labour and endogenous growth.

Abstract

This paper develops an endogenous growth model with human capital formation and ‘Efficiency Wage Hypothesis’ to investigate the growth effect of unionisation and to analyse properties of optimum income tax rate in the presence of an unionised labour market and with taxation only on labour income. ‘Efficient Bargaining’ model as well as ‘Right to Manage’ model is used to solve the negotiation problem between the labour union and the employer’s association. In both type modelling framework, the growth effect of unionisation is independent of its employment effect; and it depends on its net effect on worker’s efficiency. The growth rate maximizing tax rate on labour income is different from the corresponding welfare maximizing tax rate; and the nature of the growth effect of unionisation is different from its welfare effect.

• Item Type: MPRA Paper
• Language: English
• Keywords: Labour union; Efficiency wage hypothesis; Human capital Formation; income tax; Endogenous growth
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; H - Public Economics > H5 - National Government Expenditures and Related Policies > H52 - Government Expenditures and Education; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J24 - Human Capital ; Skills ; Occupational Choice ; Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; J - Labor and Demographic Economics > J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining > J51 - Trade Unions: Objectives, Structure, and Effects; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

References

Adjemian, S., Langot, F., & Quintero-Rojas, C. (2010). How do Labor Market Institutions affect the Link between Growth and Unemployment: the case of the European countries. The European Journal of Comparative Economics, 7(2), 347-371.

Agénor, P.-R., & Neanidis, K. C. (2014). Optimal taxation and growth with public goods and costly enforcement. The Journal of International Trade & Economic Development 23(4), 425-454.

Akerlof, G. A. (1982). Labor Contracts as Partial Gift Exchange. The Quarterly Journal of Economics, 97(4), 543-569.

Akerlof, G. A. (1984). Gift exchange and efficiency-wage theory: Four views. The American Economic Review, 74(2), 79-83.

Akerlof, G. A., & Yellen, J. L. (1986). Efficiency wage models of the labor market. New York: Cambridge University Press.

Bandyopadhyay, D., & Basu, P. (2001). Redistributive Tax and Growth in a Model with Discrete Occupational Choice. Australian Economic Papers 40(2), 111–132.

Blankenau, W. F., & Simpson, N. B. (2004). Public education expenditures and growth. Journal of Development Economics 73(2), 583– 605.

Bräuninger, M. (2000a). Unemployment Insurance, Wage Differentials and Unemployment. FinanzArchiv / Public Finance Analysis 57(4), 485-501.

Bräuninger, M. (2000b). Wage Bargaining, Unemployment, and Growth. Journal of Institutional and Theoretical Economics, 156(4), 646-660.

Bräuninger, M. (2005). Social Security, Unemployment, and Growth. International Tax and Public Finance 12(4), 423-434.

Bucci, A. (2008). Population growth in a model of economic growth with human capital accumulation and horizontal R&D. Journal of Macroeconomics 30(3), 1124–1147.

Caballé, J., & Santos, M. S. (1993). On Endogenous Growth with Physical and Human Capital. Journal of Political Economy 101(6), 1042-1067.

Chakraborty, B., & Gupta, M. R. (2009). Human capital, inequality, endogenous growth and educational subsidy: A theoretical analysis. Research in Economics 63(2), 77–90.

Chang, J.-j., Shaw, M.-f., & Lai, C.-c. (2007). A ‘‘Managerial’’ trade union and economic growth. European Economic Review, 51(2), 365-384.

Corsetti, G., & Roubini, N. (1996). Optimal government spending and taxation in endogenous growth models. NBER Working paper 5851.

Crossley, T. F., & Low, H. (2011). Borrowing constraints, the cost of precautionary saving and unemployment insurance. International Tax and Public Finance 18(6), 658-687.

Danthine, J.-P., & Kurmann, A. (2006). Efficiency wages revisited: The internal reference perspective. Economics Letters, 90(2), 278–284.

Davidson, C., & Woodbury, S. A. (1997). Optimal unemployment insurance. Journal of Public Economics 64(3), 359–387.

Docquier, F., Faye, O., & Pestieau, P. (2008). Is migration a good substitute for education subsidies? Journal of Development Economics 86(2), 263–276.

Garino, G., & Martin, C. (2000). Efficiency wages and union–firm bargaining. Economics Letters, 69(2), 181–185.

Glomm, G., & Ravikumar, B. (1997). Productive government expenditures and long-run growth. Journal of Economic Dynamics and Control 21(1), 183–204.

Irmen, A., & Wigger, B. U. (2002/2003). Trade Union Objectives and Economic Growth. FinanzArchiv / Public Finance Analysis, 59(1), 49-67.

Kitaura, K. (2010). Fiscal Policy and Economic Growth in the Imperfect Labor Market. Metroeconomica, 61(4), 686–700.

Lai, C.-H., & Wang, V. (2010). The effects of unionization in an R&D growth model with (In)determinate equilibrium. MPRA Paper 27748. University Library of Munich, Germany.

Landais, C., Michaillat, P., & Saez, E. (2010). Optimal Unemployment Insurance Over the Business Cycle. NBER Working Paper No. 16526.

Lingens, J. (2003a). The impact of a unionised labour market in a Schumpeterian growth model. Labour Economics, 10(1), 91-104.

Lingens, J. (2003b). Unionisation, Growth and Endogenous Skill-Formation. Economics Discussion Papers No. 45/03. University of Kassel, Institute of Economics, Germany.

Lucas Jr., R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics 22(1), 3–42.

Marti, C. (1997). Efficiency wages: combining the shirking and turnover cost models. Economics Letters, 57(3), 327–330.

Mauleon, A., & Vannetelbosch, V. J. (2003). Efficiency wages and union-firm bargaining with private information. Spanish Economic Review, 5(4), 307-316.

McDonald, I. M., & Solow, R. M. (1981). Wage Bargaining and Employment. The American Economic Review, 71(5), 896-908.

Ni, S., & Wang, X. (1994). Human capital and income taxation in an endogenous growth model. Journal of Macroeconomics, 16(3), 493–507.

Nickell, S. J., & Andrews, M. (1983). Unions, Real Wages and Employment in Britain 1951-79. Oxford Economic Papers, New Series, 35, 183-206.

Palokangas, T. (1996). Endogenous growth and collective bargaining. Journal of Economic Dynamics and Control, 20(5), 925-944.

Palokangas, T. (2003). Labour Market Regulation, Productivity-Improving R&D and Endogenous Growth. IZA Discussion Papers no. 720.

Palokangas, T. (2004). Union–Firm Bargaining, Productivity Improvement and Endogenous Growth. LABOUR, 18(2), 191–205.

Peach, E. K., & Stanley, T. D. (2009). Efficiency Wages, Productivity and Simultaneity: A Meta-Regression Analysis. Journal of Labor Research, 30(3), 262-268.

Pereau, J., & Sanz, N. (2006). Trade unions, efficiency wages and employment. Economics Bulletin, 10(4), 1−8.

Ramos Parreño, J. M., & Sánchez-Losada, F. (2002). The role of unions in an endogenous growth model with human capital. Journal of Macroeconomics, 24(2), 171–192.

Raurich, X., & Sorolla, V. (2003). Growth, unemployment and public capital. Spanish Economic Review, 5(1), 49-61.

Romer, D. (2006). Advanced macroeconomics. New York: McGraw-Hill / Irwin.

Shapiro, C., & Stiglitz, J. E. (1984). Equilibrium Unemployment as a Worker Discipline Device. The American Economic Review, 74(3), 433-444.

Solow, R. M. (1979). Another possible source of wage stickiness. Journal of Macroeconomics, 1(1), 79–82.

Sorensen, J. R. (1997). Do Trade Unions Actually Worsen Economic Performance? Working Paper No. 1997-6. School of Economics and Management, University of Aarhus.

Stiglitz, J. E. (1976). The Efficiency Wage Hypothesis, Surplus Labour, and the Distribution of Income in L.D.C.s. Oxford Economic Papers, 28(2), 185-207.

Tournemaine, F., & Tsoukis, C. (Forthcoming). Public Expenditures, Growth and Distribution in a Mixed Regime of Education with a Status Motive. Journal of Public Economic Theory.

Uzawa, H. (1965). Optimum Technical Change in An Aggregative Model of Economic Growth. International Economic Review 6(1), 18-31.

Yellen, J. L. (1984). Efficiency Wage Models of Unemployment. The American Economic Review, 74(2), 200-205.