Wage-Setting Institutions, Unemployment, and Voters' Demand for Redistribution Policy

This paper examines unemployment, wages, and voters’ demand for redistribution policy under three different labour market structures: laissez–faire, wage–setting by company or industrial unions, and wage–setting by a central union. Decisions on the level of taxes and benefits are made by majority ru...

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Bibliographic Details
Published in:Scottish journal of political economy 2001-11, Vol.48 (5), p.517-531
Main Author: Dur, Robert A. J.
Format: Article
Language:English
Subjects:
Distribution
Government
Labor Market
Labour market structure
Laissez-faire
Netherlands
Political economy
Political science
Studies
Taxation
Taxes
Unemployment
Unions
Voter behavior
Voters
Voting Behavior
Wage rates
Wages
Wages & salaries
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Summary:This paper examines unemployment, wages, and voters’ demand for redistribution policy under three different labour market structures: laissez–faire, wage–setting by company or industrial unions, and wage–setting by a central union. Decisions on the level of taxes and benefits are made by majority rule. Taxes, wages, and unemployment are lowest under competitive wage–setting and highest with decentralised unions. A higher degree of centralisation of union wage–setting implies lower unemployment and taxes because a fiscal externality is internalised. Under some conditions about the composition of the population, the political–economic equilibrium can further be improved upon by cooperation between the government and the central union. This seems to have happened in the Netherlands where the unions and the government agreed to cut taxes and restrain wages, which has led to the ‘Dutch Miracle’.
ISSN:0036-9292
1467-9485
DOI:10.1111/1467-9485.00212