The Union Threat

67 Pages Posted: 21 Feb 2015 Last revised: 5 Mar 2020

Date Written: March 4, 2020

Abstract

This paper develops a search theory of labor unions in which the possibility of unionization distorts the behavior of nonunion firms. In the model, unions arise endogenously through a majority election within firms. As union wages are set through a collective bargaining process, unionization compresses wages and lowers profits. To prevent unionization, nonunion firms over-hire high-skill workers—who vote against the union—and under-hire low-skill workers—who vote in its favor. As a consequence of this distortion in hiring, firms that are threatened by unionization hire fewer workers, produce less and pay a more concentrated distribution of wages. In the calibrated economy, the threat of unionization has a significant negative impact on aggregate output, but it also reduces wage inequality.

Keywords: union threat, labor union, macroeconomic impact of unions

JEL Classification: J51, E24

Suggested Citation

Taschereau-Dumouchel, Mathieu, The Union Threat (March 4, 2020). Available at SSRN: https://ssrn.com/abstract=2567359 or http://dx.doi.org/10.2139/ssrn.2567359

Mathieu Taschereau-Dumouchel (Contact Author)

Cornell University - Department of Economics ( email )

414 Uris Hall
Ithaca, NY 14853-7601
United States

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