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Is Collective Bargaining Pareto Efficient? A Survey of the Literature

Author

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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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    References listed on IDEAS

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    1. Vannetelbosch, Vincent J., 1996. "Testing between alternative wage-employment bargaining models using Belgian aggregate data," Labour Economics, Elsevier, pages 43-64.
    2. Hirsch, Barry T. & Prasad, Kislaya, 1995. "Wage-employment determination and a union tax on capital: Can theory and evidence be reconciled?," Economics Letters, Elsevier, vol. 48(1), pages 61-71, April.
    3. Martinello, Felice, 1989. "Wage and Employment Determination in a Unionized Industry: The IWA and the British Columbia Wood Products Industry," Journal of Labor Economics, University of Chicago Press, vol. 7(3), pages 303-330, July.
    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 923-942, October.
    5. Christofides, Louis N., 1990. "Non-nested tests of efficient bargain and labour demand models," Economics Letters, Elsevier, vol. 32(1), pages 91-96, January.
    6. Richard Layard & Stephen Nickell, 1990. "Is Unemployment Lower if Unions Bargain over Employment?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 773-787.
    7. Kuhn, Peter, 1988. "A Nonuniform Pricing Model of Union Wages and Employment," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 473-508, June.
    8. Alogoskoufis, George & Manning, Alan, 1991. "Tests of alternative wage employment bargaining models with an application to the UK aggregate labour market," European Economic Review, Elsevier, vol. 35(1), pages 23-37, January.
    9. Manning, Alan, 1987. "An Integration of Trade Union Models in a Sequential Bargaining Framework," Economic Journal, Royal Economic Society, vol. 97(385), pages 121-139, March.
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    Cited by:

    1. David Marsden, 2015. "The Future of the German Industrial Relations Model," CEP Discussion Papers dp1344, Centre for Economic Performance, LSE.
    2. 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.

    More about this item

    Keywords

    labour unions; labor unions; monopoly seller; efficiency; wages;

    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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