Abstract
In a democratic model of union wage-setting, monopoly unions can induce hysteresis in the behavior of employment, at least locally. As a result, autoregressive representations of employment and membership should contain a unit root even if the determinants of labor demand are stationary. In addition, the model predicts that employment should Granger-cause consumption wages. These implications are tested with data from several European countries. Although there is little conclusive evidence that employment hysteresis constitutes the key difference between the European and US experiences, trade union membership data from the Federal Republic of Germany provides strong support for the membership hysteresis hypothesis in this country.
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This paper is based on some results of Chapter 3 of my PhD dissertation at Harvard University. In an effort to pay off some old debts, I would like to thank J.T. Dunlop for timely financial assistance as well as Olivier Blanchard, David Levine, Warwick McKibbin, Changyong Rhee, Larry Summers and seminar participants at Harvard, Texas, Wisconsin, Cornell, Chapel Hill, the Board of Governors of the Federal Reserve System, and the 1987 NBER Summer Workshop for useful comments and suggestions. The comments of two referees on the current version are also gratefully acknowledged. André Urani assisted with the computations.
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Burda, M.C. Some evidence on the membership hysteresis hypothesis in Europe. Empirical Economics 15, 143–161 (1990). https://doi.org/10.1007/BF01973450
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DOI: https://doi.org/10.1007/BF01973450