If bad money drives out good money: deunionisation and productivity slowdown

The Institute of Economics will hold one of the meetings of its Seminar Series on Tuesday, March 5, 2019: Giovanni Dosi, from the Institute of Economics of Scuola Superiore Sant'Anna, will present the paper If bad money drives out good money: deunionisation and productivity slowdown.

Abstract:

The paper proposes an Agent-Based Model (ABM) able to account for an endogenous process of labour deunionisation resulting from a competition mechanism between two types of firms, namely unionised and non-unionised, and to evaluate the associated macroeconomic consequences. Whenever deunionisation prevails, the growth of productivity declines while its standard deviation and market concentration increase. In this “winner-takes-all” type of outcome, cost competition induces deflationary spirals and product quality reduction. By means of a shift-and-share decomposition, we track the within, between, cross, entry and exit components of the overall productivity growth and the ensuing wage-productivity nexus. The results highlight the more efficient dynamics fostered by a “social market economy” populated by unionised firms, wherein the process of innovation, and therefore productivity growth, is reinforced by the accumulation of firm-level capabilities, worker skills, and a more egalitarian wage structure.