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The Economic Behavior of Trade Unions

  • Alison Booth

A trade union is an organized association of workers formed for the protection and promotion of their common interests. The standard view of unions is that they are monopoly organizations that improve the welfare of members, principally by raising wages above the competitive level. For a union to be able to increase wage rates above the competitive level, there must be some surplus that can be shared between the firm and the union, and the union must have some bargaining power to induce the firm to share this surplus. This article investigates the conditions under which a union can increase wages, and explores ways of modeling the competing preferences of unions and management. The article also notes the arguments suggesting that, in the presence of imperfect information and uncertainty, unions may enhance efficiency. To the extent that unions reduce labor turnover and negotiating costs, they may increase the available surplus to be shared between parties.

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File URL: http://cbe.anu.edu.au/researchpapers/cepr/DP670.pdf
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Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 670.

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Date of creation: Oct 2012
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Handle: RePEc:auu:dpaper:670
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  1. repec:cup:cbooks:9780521464673 is not listed on IDEAS
  2. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
  3. Stewart, M.B., 1989. "Union Wage Differentials, Product Market Influences And The Division Of Rents," The Warwick Economics Research Paper Series (TWERPS) 323, University of Warwick, Department of Economics.
  4. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-42, October.
  5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  6. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
  7. Blair, Douglas H & Crawford, David L, 1984. "Labor Union Objectives and Collective Bargaining," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 547-66, August.
  8. Faith, Roger L. & Reid, Joseph Jr., 1987. "An agency theory of unionism," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 39-60, March.
  9. Booth, Alison L, 1985. "The Free Rider Problem and a Social Custom Model of Trade Union Membership," The Quarterly Journal of Economics, MIT Press, vol. 100(1), pages 253-61, February.
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