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Unions: Rent Extractors or Creators?


  • Aidt, T.S.
  • Vania Sena


This paper proposes a model of workplace-specific unions that integrates two (conflicting) views of what unions do: one that unions mainly engage in rent extraction, the other that unions mainly engage in rent creation by providing agency services that increase workplace productivity. In our model, the union leadership makes a choice between the two types of activities, and we demonstrate why it is optimal to engage in both: rent extraction increases the bargained wage rate, rent creation secures higher employment. More importantly, the choice between the two activities depends systematically on the economic and regulatory environment in which the union operates. Unions operating in an environment of intense market competition are mainly engaged in rent extraction. Our model thus suggests that the economic and regulatory environment is an important determinant of “what unions do”, and that changes/differences in this environment can explain changes/differences in union behaviour across time and space.

Suggested Citation

  • Aidt, T.S. & Vania Sena, 2002. "Unions: Rent Extractors or Creators?," Cambridge Working Papers in Economics 0236, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0236
    Note: L

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    Cited by:

    1. Suphachol Suphachalasai, 2005. "Bureaucratic Corruption and Mass Media," Public Economics 0502014, EconWPA.

    More about this item


    unions; rent creation; rent extraction; product market competition;

    JEL classification:

    • J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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