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Workers versus Government: Who Adjusts to Whom?

Tor Hersoug
The Scandinavian Journal of Economics
Vol. 87, No. 2, Proceedings of a Conference on Trade Unions, Wage Formation and Macroeconomic Stability (Jun., 1985), pp. 270-292
Published by: Wiley on behalf of The Scandinavian Journal of Economics
DOI: 10.2307/3439828
Stable URL: http://www.jstor.org/stable/3439828
Page Count: 23
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Workers versus Government: Who Adjusts to Whom?
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Abstract

A dominant trade union and the government are regarded as players in a game. It is argued that the institutional setting is such that the union in effect makes the first move, and government the last. Then the Stackelberg solution with the union as the leader is a Nash equilibrium. This solution is in accordance with an accommodating policy, implying relatively high wage and price levels and a poor trade balance. A nonaccommodating policy with the unions as the follower would be preferred by the government, and may not imply lower employment, but is likely to require short-run losses in order to be established. A cooperative solution could be to mutual benefit, but is rarely observed. Problems of realizing such a solution are discussed.

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