International Competition and the Unionized Sector

Abstract

This paper studies the wage and employment behavior of a unionized sector that is confronted by an intensification of international competition. After developing a formal model of a monopoly union subject to majority rule, I study the response of a unionized sector operating under a seniority rule for layoffs and rehires to a trend decrease in the international price of its output. Conditions are provided to validate the casual argument that majority voting in unions and the seniority system together provide an explanation for the lack of union wage adjustment. A modified version of the model allows the job queue to deviate from a strict seniority ranking. In this context I ask, what importance can be attached to the seniority system in determining the wage response to international competition?