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The Union Threat

Author

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  • Mathieu Taschereau-Dumouchel

    (Princeton University)

Abstract

This paper studies the impact of unions on wage inequality, output and unemployment. To do so, it proposes a search and matching model of union formation in which unions arise endogenously through a voting process within firms. In a union firm, workers bargain their wages collectively. In a nonunion firm, each worker bargains individually with the firm. Because of this wage setting asymmetry, a union lowers the profit of a firm and compresses the wage distribution of the workers. Furthermore, to prevent unionization, nonunion firms distort their hiring decisions in a way that also lowers the dispersion of wages. After being calibrated on the United States, the model shows that, even though a partial equilibrium estimate would predict a small impact of unions on inequality, removing the threat of unionization increases the variance of wages substantially. Completely outlawing unions increases wage inequality further. Also, outlawing unions increases welfare and output, and lowers unemployment. These results suggest that, even with a small membership, unions might have a significant impact on the economy through general equilibrium mechanisms and the way they distort firms' decisions.

Suggested Citation

  • Mathieu Taschereau-Dumouchel, 2011. "The Union Threat," 2011 Meeting Papers 434, Society for Economic Dynamics.
  • Handle: RePEc:red:sed011:434
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    Cited by:

    1. Florian Baumann & Tobias Brändle, 2015. "We Want them all Covered! Collective Bargaining and Firm Heterogeneity. Theory and Evidence from Germany," IAW Discussion Papers 114, Institut für Angewandte Wirtschaftsforschung (IAW).
    2. Krusell, Per & Rudanko, Leena, 2016. "Unions in a frictional labor market," Journal of Monetary Economics, Elsevier, vol. 80(C), pages 35-50.
    3. Juan Carluccio & Denis Fougère & Erwan Gautier, 2015. "Trade, Wages and Collective Bargaining: Evidence from France," Economic Journal, Royal Economic Society, vol. 0(584), pages 803-837, May.
    4. Michele Battisti & Ryan Michaels & Choonsung Park, 2016. "Labor supply within the firm," ifo Working Paper Series 222, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Emin M. Dinlersoz & Jeremy Greenwood, 2012. "The Rise and Fall of Unions in the U.S," NBER Working Papers 18079, National Bureau of Economic Research, Inc.
    6. Simeon Alder & David Lagakos & Lee Ohanian, 2014. "Competitive Pressure and the Decline of the Rust Belt: A Macroeconomic Analysis," NBER Working Papers 20538, National Bureau of Economic Research, Inc.
    7. Finn Martensen, 2014. "Opposite Effects of Competition and Rents on Collective Bargaining – Evidence from Germany," Working Paper Series of the Department of Economics, University of Konstanz 2014-15, Department of Economics, University of Konstanz.
    8. repec:cen:wpaper:12-12 is not listed on IDEAS

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