A Keynesian reformulation of the WS-PS model: Keynesian unemployment and Classical unemployment

Abstract

The orthodox theory of wage negotiations considers that the trade union monopoly causes a rigidity of real wages which is, itself, the cause of unemployment. The model of this negotiation ( Nash bargaining ) only considers situations where negotiations between union and firm succeed. In this article, we attempt to read the WS-PS model from a Keynesian point of view. Our model reflects the fact that successful negotiation is only one case among other situations, including failure where the union expresses a claim that is not necessarily satisfied. Although, in situations close to full employment, there is a bargaining mechanism by which unions and firms reach an agreement, this is not the case in times of massive unemployment. In the latter situation, employment is unilaterally determined by firms, on the basis of previous demand.