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

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  • Marco de Pinto

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

Abstract

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.

Suggested Citation

  • Marco de Pinto, 2015. "Firm-level versus Sector-level Trade Unions – The Role of Rent-Sharing Motives," IAAEU Discussion Papers 201508, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    • Handle: RePEc:iaa:dpaper:201508
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    More about this item

    Keywords

    Trade Unions; Rent-sharing Motives; Bargaining Level; Heterogeneous Firms; Unemployment;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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