Unions, Job Security, and Incentives of Workers
We consider why blue collar workers are more likely to organize unions than white collar workers by looking at commitment devices and imperfect signals on workers' actions. Under contractual incompleteness, firms cannot ex ante promise to keep employment levels high. However, if unions resist firms' dismissal policies by the request of high severance pay, unions can play a significant role as a commitment device for job security. Then, since firms can decrease wage and increase employment level, the profit of unionized firms can be more than that of non-union firms. Furthermore, we show that imperfect signals on workers' actions weakens the role of unions as a commitment device. This results in less union organizing by white collar workers since the efforts level of white collar workers is more difficult to observe than that of blue collar workers.
|Date of creation:||Sep 2000|
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