Workers vs. Government : Who Adjusts to Whom?

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 takes the first move, and government the last. Then the Stackelberg-solution with the union as 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 non-accommodating policy with a following union would be preferred by the government, and may not imply lower employment, but it 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 it are discussed.Published in connection with a visit at the IIE