ARE EMPLOYMENT POLICIES COUNTERPRODUCTIVE WHEN WAGE SETTING IS CENTRALIZED

When government policy is subjected to a balanced budget constraint, total income of the workers is independent of employment policy. An employment policy distributes income more evenly, and may lead a union with strong preferences for equality to raise its wage. However, a sufficiently vigorous employment policy is always effective. Unions which maximize the after-tax real wage always lower the nominal wage when government employment policy becomes more vigorous. The constraints enforce an implicit tax-based incomes policy (TIP), and there is limited scope for other forms of TIP.