(2005). We extend it by unemployment risk using Markov chains to model the transition between different employment states …. In contrast to most models in the life cycle literature, our model allows for three different states, namely employment …, short-term as well as long-term unemployment. This allows us to examine the effects of persistence in the unemployment …

can affect the decision to join a trade union. Furthermore, a shift in risk attitudes can alter collective bargaining … that an overall increase in risk aversion contributes to wage moderation and promotes employment. …