Undominated Wage Rates in a Unionized Overlapping Generations Economy

An overlapping generations, macro model where consumers are divided into workers and capitalists is analysed. In each period the wage rate is negotiated between an employers' union and a trade union. Other prices adjust competitively. The solution concept used is cooperative, the wage rate chosen by unions should be undominated, i.e. there must not exist another wage rate leading to higher utilities for both workers and capitalists. The resulting one period equilibria, relative Pareto optima, RPO, and also stationary equilibria, stationary relative Pareto optima, SRPO are analysed. Results are that full employment (S)RPO always exist and in some economies unemployment (S)RPO also exist. Sufficient conditions for the latter to be the case are stated and the existence of economies fulfilling these conditions is demonstrated.