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Is Collective Bargaining Pareto Efficient? A Survey of the Literature

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  • Nicholas Lawson

    (Princeton University)

Abstract

It would be hard, even today, to deny that labor unions are important economic institutions, and it is this importance that makes their consequences for efficiency so substantial. Interest in the economic analysis of unions was revived in the early 1980s, in large part by a paper by Ian McDonald and Robert Solow which formalized, algebraically and graphically, ideas which were first expressed in the context of labor markets 35 years earlier by Wassily Leontief. The standard textbook model of the labour union treats the union as a conventional monopoly seller of labor, selecting the wage while the firm chooses the level of employment; McDonald & Solow, however, drew from Leontief's work to suggest an alternative in which the firm and union negotiate to a Pareto efficient contract. Further theoretical work followed, and a still-growing empirical literature began to develop, a significant portion of it dedicated to testing McDonald & Solow's model against the traditional labor demand curve theory. A wide variety of empirical procedures and tests have been attempted, with a diverse and contradictory range of findings; given the importance of the question of the efficiency of union contracts, an up-to-date survey of the literature may be useful in synthesizing past results and pointing the way to future research, and it is this role which the current paper will attempt to fill.

Suggested Citation

  • Nicholas Lawson, 2010. "Is Collective Bargaining Pareto Efficient? A Survey of the Literature," Working Papers 1268, Princeton University, Department of Economics, Industrial Relations Section..
  • Handle: RePEc:pri:indrel:558
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    Cited by:

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    2. Thorsten Upmann & Julia Müller, 2014. "The Structure of Firm-Specific Labour Unions," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 170(2), pages 336-364, June.
    3. Julia Müller & Thorsten Upmann, 2013. "Centralised Labour Market Negotiations," CESifo Working Paper Series 4470, CESifo.
    4. Marco de Pinto & Jörg Lingens, 2019. "Unionization, information asymmetry and the de‐location of firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(4), pages 1782-1823, November.
    5. Fanti, Luciano & Buccella, Domenico, 2020. "Strategic Trade Policy with Asymmetric Bargaining Agenda," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 73(2), pages 257-274.
    6. Carsten Eckel & Hartmut Egger, 2017. "The Dilemma of Labor Unions: Local Objectives vs Global Bargaining," Review of International Economics, Wiley Blackwell, vol. 25(3), pages 534-566, August.
    7. Neto, António & Furukawa, Yuichi & Ribeiro, Ana Paula, 2017. "Can Trade Unions Increase Social Welfare? An R&D Model with Cash-in-Advance Constraints," MPRA Paper 77312, University Library of Munich, Germany.
    8. Luciano Fanti, 2011. "When do firms prefer either monopolistic unions or an efficient bargaining?," Discussion Papers 2011/130, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    9. Luciano Fanti, 2011. "When an efficient bargaining is more "efficient" than a competitive labour market," Discussion Papers 2011/131, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    10. David Marsden, 2015. "The future of the German industrial relations model [Die Zukunft des deutschen Modells der Arbeitsbeziehungen]," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 48(2), pages 169-187, August.
    11. Marsden, David, 2015. "The future of the German industrial relations model," LSE Research Online Documents on Economics 62932, London School of Economics and Political Science, LSE Library.
    12. Elizabeth Schroeder & Victor J. Tremblay, 2014. "Union Bargaining in an Oligopoly Market with Cournot-Bertrand Competition: Welfare and Policy Implications," Economies, MDPI, Open Access Journal, vol. 2(2), pages 1-14, March.
    13. Afonso, Óscar, 2016. "Effects of labour-market institutions on employment, wages, R&D intensity and growth in 27 OECD countries: From theory to practice," Economic Modelling, Elsevier, vol. 53(C), pages 48-62.
    14. Kraft, Kornelius, 2018. "Productivity and distribution effects of codetermination in an efficient bargaining model," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 458-485.
    15. Claus-Jochen Haake & Thorsten Upmann & Papatya Duman, 2019. "The Decomposability of the Nash Bargaining Solution in Labor Markets," Working Papers CIE 128, Paderborn University, CIE Center for International Economics.

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    More about this item

    Keywords

    labour unions; labor unions; monopoly seller; efficiency; wages;
    All these keywords.

    JEL classification:

    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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