According to the standard union bargaining model, unemployment benefits should have big effects on wages, but product market prices and productivity should play no role in the wage bargain. We formulate an alternative strategic bargaining model, where labour and product market conditions...

This paper proposes a new route, namely efficient bargains between the union and the firm over wage and employment, to shed light on the robustness of the Mundell (1963) proposition. It is found that, in a flexible exchange rate economy with perfect capital mobility, a fiscal expansion will have...