Unionised labour market, environment and endogenous growth

In this paper, a model of endogenous economic growth is developed with special focus on the interaction between unionized labour market and environmental pollution. We introduce a trade union; and use both ‘Efficient Bargaining’ model and ‘Right to Manage’ model to solve the negotiation problem. Environmental pollution is the result of production; and the labour union bargains not only for wage and employment but also for the protection of environment. We derive properties of optimum income tax policy while financing abatement expenditure; and also analyse the effects of unionization on the level of employment and on growth rate. It appears that the optimum rate of income tax varies inversely with the relative bargaining power of the labour union. An increase in the relative bargaining power of the labour union may enhance employment in ‘Efficient Bargaining’ model if the labour union is highly employment oriented. However, the union always forces the firm to raise the spending rate for environment protection. So, unionisation may raise the growth rate, even if the first effect is negative, but the second effect dominates the first effect.