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Firm-level versus Sector-level Trade Unions – The Role of Rent-Sharing Motives

Listed author(s):
  • Marco de Pinto

    ()

    (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

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    What are the effects of firm- and sector-level trade unions on unemployment and aggregate output if individuals have rent-sharing motives? To answer this question, we extend a Melitz-type model to unionized labor markets. Because individual rent-sharing motives are only taken into account and asserted by firm-level unions which capture a higher fraction of firms' rents via firm-specific wages, average profits are higher under sector-level trade unions. As a consequence, firm-selection increases (relative to firm-level unions), which causes average marginal costs to decline. At the general equilibrium, labor demand then, ceteris paribus, increases and unemployment falls. This new mechanism interacts with the negative employment effect due to higher wage markups of sector-level trade unions, as shown e.g. by Calmfors et al. (1988). Simulating our model indicates that the unemployment damping effect of rent-sharing motives mitigates but does not compensate for the unemployment increase caused by higher wage markups, while aggregate output is higher under sector-level agreements.

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    Paper provided by Institute of Labour Law and Industrial Relations in the European Union (IAAEU) in its series IAAEU Discussion Papers with number 201508.

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    Date of creation: Aug 2015
    Handle: RePEc:iaa:dpaper:201508
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    1. Braun, Sebastian, 2011. "Unionisation structures, productivity and firm performance: New insights from a heterogeneous firm model," Labour Economics, Elsevier, vol. 18(1), pages 120-129, January.
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    7. Tim Friehe & Mario Mechtel & Markus Pannenberg, 2014. "Positional Income Concerns: Prevalence and Relationship with Personality and Economic Preferences," IAAEU Discussion Papers 201411, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    8. Glazer, Amihai & Konrad, Kai A, 1996. "A Signaling Explanation for Charity," American Economic Review, American Economic Association, vol. 86(4), pages 1019-1028, September.
    9. Hartmut Egger & Daniel Etzel, 2012. "Union Wage Setting and International Trade," CESifo Working Paper Series 3929, CESifo Group Munich.
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