Calmfors-Driffill hypothesis
Encyclopedia
The Calmfors–Driffill hypothesis is a macroeconomic
theory in labour economics
that states that there is a non-linear relationship between the degree of collective bargaining
in an economy and the level of unemployment. Specifically, it states that the relationship is roughly that of an 'inverted U
': as trade union
size increases from nil, unemployment increases, and then falls as unions begin to exercise monopoly
power. It was advanced by Lars Calmfors
and John Driffill
in their 1988 paper Bargaining structure, corporatism and macroeconomic performance.
The rationale is related to Mancur Olson
's idea, from The Rise and Decline of Nations, that organised interests are at their most harmful when they do not internalise significant amounts of the costs they impose on society, but become less harmful as their interest becomes encompassing enough to suffer the costs.
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
theory in labour economics
Labour economics
Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...
that states that there is a non-linear relationship between the degree of collective bargaining
Collective bargaining
Collective bargaining is a process of negotiations between employers and the representatives of a unit of employees aimed at reaching agreements that regulate working conditions...
in an economy and the level of unemployment. Specifically, it states that the relationship is roughly that of an 'inverted U
Inverted U
Inverted U may refer to:* Calmfors-Driffill hypothesis, an economic theory describing the relationship between collective bargaining and employment* Kuznets curve, an economic theory describing the relationship between income per capita and wealth inequity...
': as trade union
Trade union
A trade union, trades union or labor union is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates labour contracts with...
size increases from nil, unemployment increases, and then falls as unions begin to exercise monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
power. It was advanced by Lars Calmfors
Lars Calmfors
Lars Calmfors, born July 12, 1948 in Stockholm, is a Swedish economist and professor of international economics at the Institute for International Economic Studies at Stockholm University....
and John Driffill
John Driffill
John Driffill is a professor of economics at Birkbeck, University of London, specialising in international macroeconomics and labour economics. He is the creator of the Calmfors-Driffill hypothesis....
in their 1988 paper Bargaining structure, corporatism and macroeconomic performance.
The rationale is related to Mancur Olson
Mancur Olson
Mancur Lloyd Olson, Jr. was a leading American economist and social scientist who, at the time of his death, worked at the University of Maryland, College Park...
's idea, from The Rise and Decline of Nations, that organised interests are at their most harmful when they do not internalise significant amounts of the costs they impose on society, but become less harmful as their interest becomes encompassing enough to suffer the costs.