Unions as Commitment Devices: Strong Unions are Welcome
AbstractUnder incompleteness of contracts, we consider one role of unions to be as a commitment device. When wage and dismissal rate contingent on the states are not described in labor contracts, although a wage offer is verifiable, the firm cannot promise to keep employment ex ante and cannot make employees believe the promise of job security. Thus, the firm must offer a high wage to encourage workers in accumulating skills. However, if strong unions exist and resist the firm's dismissal policy, unions can play a significant role as commitment devices for job security. Then, since the firm can decrease wage and increase employment level, we can expect the profit of the firm with the strong union to be more than that without a union. Therefore, strong unions would be welcome. Furthermore, we consider the possibility of wage adjustment as renegotiation in a recession, and show that wage adjustment occurs in slightly severe recessions, but that under severe recessions dismissal of employees cannot be avoided.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-46.
Length: 38 pages
Date of creation: Apr 1999
Date of revision:
Contact details of provider:
Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033
Web page: http://www.cirje.e.u-tokyo.ac.jp/index.html
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-07-28 (All new papers)
- NEP-LAB-1999-07-28 (Labour Economics)
- NEP-MIC-1999-07-28 (Microeconomics)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CIRJE administrative office).
If references are entirely missing, you can add them using this form.