An Imperfectly Competitive Open Economy with Sequential Bargaining in the Labour Market

We consider a three sector small open economy with a monopolistic non traded sector, a competitive traded good sector, and a capital good sector. In both the consumer good sector, there are enterprise unions that bargain sequentially over wages and employment as in Manning [1987]. This approach encompasses the standard monopoly union, right-to-manage and efficient bargain bargaining models. We consider first the effects of bargaining strengths at each stage on overall macroeconomic equilibrium. Here we find strong general equilibrium spillover effects: bargaining strength in one sector affecting the other sectors. Second, we consider the influence of the bargaining process on the welfare analysis of fiscal policy.