Trade Unions and Transfer Payments: When are They Reasons to Prefer Democracy to Dictatorship?

UC Davis Working Paper #97-25

Posted: 3 Apr 1998

See all articles by John E. Roemer

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Date Written: September, 1997

Abstract

Under dictatorship, trade unions and strikes are illegal, and so wages are low and employment is full. Under democracy, there are two institutional innovations: trade unions, which can keep the wage about the Walrasian level, and the citizen franchise, by which citizens may vote transfer payments to the unemployed. I model the dictatorial equilibrium as Walrasian, and the democratic equilibrium as the Nash equilibrium of a game played between voters and union members-more formally, between the median voter and the median worker. These two individuals are different, because the polity consists of workers and asset-holders-the latter vote, but supply capital rather than labor.

In the move from dictatorship to democracy, the worker exchanges the sure-thing of a low wage to a lottery between a higher wage (if employed) and a transfer payment (if unemployed). Workers are differentiated according to their skill. I calculate the size of the coalition of workers that favors the democratic equilibrium over the dictatorial equilibrium, as a parameter of economic development increases. For a class of CES production functions, it is indeed the case that the democracy-favoring coalition grows with economic development. This is not true, however, for the Cobb-Douglas production function.

JEL Classification: D70, D72, O1

Suggested Citation

Roemer, John E., Trade Unions and Transfer Payments: When are They Reasons to Prefer Democracy to Dictatorship? (September, 1997). UC Davis Working Paper #97-25. Available at SSRN: https://ssrn.com/abstract=73428

John E. Roemer (Contact Author)

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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