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DP114 | Union Activity and Economic Resilience

Publication Date

01/06/1986

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Abstract

The paper analyzes how the influence of labour unions over wage contracts may make an economy less "resilient". Loss of resilience is depicted in two conceptually independent ways: (i) the tendency of exogenous variations in unemployment to become perpetuated and (ii) the possibility that such swings may give rise to a wage-unemployment ratchet. In this manner, the analysis attempts to provide an explanation of why unemployment rates in Europe and the United States have displayed an upward trend over the past fifteen years and why the United States recovered much more speedily from the recession of the early 1980s than did most European economies.