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Unions, Job Security, and Incentives of Workers

  • Kyota Eguchi

    (Faculty of Economics, University of Tokyo)

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    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.

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    Paper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-91.

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    Length: 32 pages
    Date of creation: Sep 2000
    Date of revision:
    Handle: RePEc:tky:fseres:2000cf91
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    1. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 541-55, October.
    2. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Farber, Henry S, 1983. "The Determination of the Union Status of Workers," Econometrica, Econometric Society, vol. 51(5), pages 1417-37, September.
    4. Qian, Yingyi & Xu, Chenggang, 1998. "Innovation and Bureaucracy under Soft and Hard Budget Constraints," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 151-64, January.
    5. Richard B. Freeman & Marcus E. Rebick, 1989. "Crumbling Pillar? Declining Union Density in Japan," NBER Working Papers 2963, National Bureau of Economic Research, Inc.
    6. Valletta, Robert G, 1993. "Union Effects on Municipal Employment and Wages: A Longitudinal Approach," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 545-74, July.
    7. Mathias Dewatripont & Jean Tirole, 1994. "A theory of debt and equity: diversity of securities and manager-shareholder congruence," ULB Institutional Repository 2013/9593, ULB -- Universite Libre de Bruxelles.
    8. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
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