The purpose of this paper is to explore the relationship between government spending, wages, employment, and prices under different assumptions about the behavior patterns of governments and labor unions.For this purpose, we analyze the interaction between utility-maximizing labor unions and welfare- (or vote-) maximizing government from a game-theoretic point of view within a fairly general macroeconomic framework. Within this framework, both labor unions and the government are assumed to maximize objective functions subject to constraints imposed by the macroeconomic environment. Rational behavior requires each to react to changes in the behavior of the other. The aim of studying the process by which unions react and counterreact to government behavior and vice versa is to attempt to shed new light on the apaprently persistent inflationary bias of the economies of the industrial countries, the gradual increase in the size of the public sector of these countries over the years, and the role that changes in the preferences and the "world view" of governments, as well as in the political and economic strength of labor unions, have played in these developments.
SAMHÄLLSVETENSKAP -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)
SOCIAL SCIENCES -- Economics and Business -- Economics (hsv//eng)