Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 249: Labor- and Product-Market Structure and Excess Labor

Björn Segendorff
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Björn Segendorff: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This study analyzes under what labor- and product-market structures a firm may hire more labor than needed to produce its profit maximizing output. Three labor-market structures are studied: (1) decentralized (firm-specific unions), (2) one-sided centralization (central union and several firms), and (3) centralized (central union and employers' association). Excess labor is explained by the risk-sharing motive that in the model exists between the risk-averse workers and the risk-neutral firm owner. Labor may be excessively hired in any of the labor-market structures and under a wide range of product-market structures; duopoly, oligopoly etc.

Keywords: Efficient wage bargaining; centralization; market power; technical efficiency.

JEL-codes: J21; J51; L11

19 pages, August 31, 1998

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