The Effects of Bank Rescue Measures in the recent Financial Crisis
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- 3.2.4 Wage setting
| 3.2.3 Equity owners
Equity owners receive income (distributed profits) from dividends paid by financial and non financial corporations. They maximise an intertemporal utility function7 subject to a budget (16)  Optimisation yields the following (inverse of the) stochastic discount factor for corporate investment
(17) 
3.2.4 Wage setting A trade union is maximising a joint utility function for each type of labour i where it is assumed that types of labour are distributed equally over constrained and unconstrained households with their respective population weights. The trade union sets wages by maximising a weighted average of the utility functions of these households. The wage rule is obtained by equating a weighted average of the marginal utility of leisure to a weighted average of the marginal utility of consumption times the real wage of these two household types, adjusted for a wage mark up (18) 
where  is the wage mark up factor, with wage mark ups fluctuating around  which is the inverse of the elasticity of substitution between different varieties of labour services. The trade union sets the consumption wage as a mark up over the reservation wage. The reservation wage is the ratio of the marginal utility of leisure to the marginal utility of consumption. This is a natural measure of the reservation wage. If this ratio is equal to the consumption wage, the household is indifferent between supplying an additional unit of labour and spending the additional income on consumption and not increasing labour supply.
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