Undominated Wage Rates in a Unionized Economy

This paper analyses a dynamic general equilibrium macro model where consumers are divided into workers and capitalists. Goods and money markets are assumed to be competitive, whereas the wage rate is determined by negotiation between a trade union and an employer's union. Unions know the structure of the economy and act to maximize member's utility. Two different limiting cases are investigated. In the first unions are "short sighted" caring about immediate utility consequences, in the second they are "long sighted" caring about utilities in stationary states. In both cases the solution concept used is cooperative, wages chosen by the unions should be undominated, i.e. there must not exist another wage rate leading to higher utility for both parties. The resulting equilibria are analyzed. In both cases results are that full employment equilibria always exist, and in some economies unemployment equilibria exist. Characterization results are given.