Minimum Wages in a Unionised Economy

This paper aims at contributing to the employment e ects of minimum wages in a unionised economy. In a dual labour market model, the rst sector outcome is characterised by bargaining between unions and rms, while in the second sector rms have to pay a statutory minimum wage. The model shows that a minimum wage increase has negative employment effects only if the bargaining outcome is described by the Nash solution. However, this result does not hold if we instead apply the Kalai-Smorodinsky solution to model union bargaining. A higher minimum wage can then lead to more employment in the unionised sector and to a lower total unemployment rate.