Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis

28 Pages Posted: 3 Jun 2016

See all articles by Matthias Strifler

Matthias Strifler

University of Jyväskylä

Thomas Beissinger

University of Hohenheim; IZA Institute of Labor Economics

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Date Written: July 2016

Abstract

We consider a theoretical model in which unions not only take the outside option into account, but also care about the performance of the firm and base their wage‐setting decisions on a firm internal reference, called the fairness reference. Two references, which measure the earnings situation of the firm, are considered – productivity and profits per worker. Wage and employment outcomes as well as the degree of wage rigidity depend on the size of the fairness reference relative to the outside option. A high fairness reference leads to wage pressure and real wage rigidity, whereas a low fairness reference leads to wage moderation and real wage flexibility. An increase in the weight on the fairness reference amplifies these deviations from the standard model.

Suggested Citation

Strifler, Matthias and Beissinger, Thomas, Fairness Considerations in Labor Union Wage Setting – A Theoretical Analysis (July 2016). Scottish Journal of Political Economy, Vol. 63, Issue 3, pp. 303-330, 2016, Available at SSRN: https://ssrn.com/abstract=2788305 or http://dx.doi.org/10.1111/sjpe.12094

Matthias Strifler (Contact Author)

University of Jyväskylä ( email )

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Thomas Beissinger

University of Hohenheim ( email )

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Stuttgart, 70593
Germany

HOME PAGE: http://labour.uni-hohenheim.de/

IZA Institute of Labor Economics

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