Endogenous domestic market structure and the effects of a trade cost reduction in a unionised industry

In contrast to the existing partial equilibrium literature considering the effects of a trade cost reduction on unionised wage under a given market structure, we show the effects by determining the domestic market structure endogenously. A lower trade cost reduces the number of active domestic firms, but it increases unionised wage in the active domestic firms under decentralised unions. Although a lower trade cost increases wage in the active domestic firms, it reduces domestic employment and total union utility at the free entry equilibrium. So, a trade cost reduction benefits domestic employed workers by increasing the unionised wage, but its effect on the total domestic workers is not favourable. If there is a centralised union, a lower trade cost reduces the number of active domestic firms, unionised wage, domestic employment and union utility.     

The impact of labour unions on external auditor selection and audit scope: evidence from the Korean market

We examine whether labour unions influence external auditor selection and audit scope. As a major user group of financial information, labour unions likely demand financial information of high quality and thus high-quality audits. As a union’s request for wage increases is likely strong when a firm is performing well, management facing wage negotiations with the labour union has incentives to manipulate earnings downward and may therefore prefer auditors who allow more discretion. Using union data unique to Korea during 2005–2008, we find that firms with a stronger labour union tend to choose higher-quality auditors (i.e. Big N or industry specialist auditors). We also find that unionization is negatively (positively) associated with positive (negative) abnormal audit fees and audit hours, and the effects are more pronounced when the union is stronger and more active. Given that departures from normal audit fees and audit hours in either direction arguably impair audit quality, this finding is consistent with our prediction of unions’ demand for high-quality audits. Overall, our findings suggest that labour unions play an important role in determining audit quality.     

Unionization,international integration,and selection

Abstract We study how unionization affects competitive selection between heterogeneous firms when wage negotiations can occur at the firm or at the profit‐centre level. With productivity specific wages, an increase in union power has: (i) a selection‐softening; (ii) a counter‐competitive; (iii) a wage‐inequality; and (iv) a variety effect. In a two‐country asymmetric setting, stronger unions soften competition for domestic firms and toughen it for exporters. With profit‐centre bargaining, we show how trade liberalization can affect wage inequality among identical workers both across firms (via its effects on competitive selection) and within firms (via wage discrimination across destination markets).     

Union Wage Effects and the Probability of Union Membership*

This paper uses Lee's (1978) model to determine the wage gains associated with trade union membership and the reasons individuals join trade unions in Australia The data are derived from the 1984 Australian National Social Science Survey. A major conclusion is that unions secure a 17.22 per cent wage gain for their members, other things the same. This expected wage premium is shown to have an important positive impact upon the union membership decision. The welfare loss associated with the union wage premium is argued to be relatively minor about one half of one per cent of gross domestic product     

The Organisation of Wage Bargaining in Divisionalised Firms

This paper analyses the organisation of wage bargaining in multiproduct firms since it affects the distribution of power between workers and firms. We assume that each firm has two plants and chooses who bargains the wage with the workers: either the head of the firm or the manager of each plant. Similarly, in each firm, its workers choose whether they set up plant unions or a single union.     

Continuity and Change in Australian Wages Policy

Australia shares with several small European economies the characteristic of having a relatively coordinated union movement with the ability to influence real wage levels. This article explores the course of wages policy over the last decade by applying to Australia a model of wage determination originating in Europe, a model which assumes that the union movement can determine the real wage level. The wage level the union movement chooses is influenced by choices it faces between real wage increases and employment growth. The unions are also influenced by the public sector employment generating activity of government. Stagflation in the late 1970s is analysed by hypothesising a misperception by the union movement of the policy options available to government, and a mistrust by government of the unions' willingness to moderate wage increases if employment levels rise rapidly. The model suggests that an accord between unions and government (such as that which has been in place in Australia since 1983) is a way to escape some of these policy dilemmas.     

Near rationality in wage setting

This study argues that it is interesting to examine near rational behaviour in the context of an efficiency wage model, where there are positive if decreasing returns to increasing the wage beyond the efficient level. Previous research has found it difficult to distinguish between efficiency wage and bargaining models, which have similar empirical predictions. But unions are a priori more likely to develop in environments in which the technology favours efficiency wage payments. This makes it interesting to investigate what it costs the firm to deviate from the efficiency wage. If it does not cost a lot, firms may give in to union demands. This study derives expressions for the wage deviation and for the associated profit loss. For illustrative purposes, these are calibrated for UK, US and Indian manufacturing, taking a plausible parameterization of the effort-wage function and using available estimates of the wage and employment elasticities of output. While there is evidence of positive effort returns to wages in the UK and India, the results are consistent with wage bargaining pushing the wage above the efficient level. The associated profit loss is considerably larger in the UK than in India. In contrast, US firms pay wages that are insignificantly different from the efficiency wage.     

The endogenous national minimum wage institution

This paper offers reasoning for the endogenous sustainability of the National Minimum Wage Institution (NMWI). In an economy with asymmetries in productivity among unionized firms, high-tech firms may often opt for minimum wage agreements covering all unionized workers, in order to raise the relative costs of their rival low-tech firms. Their workers’ unions as well as the unions of workers in low-tech firms share this interest, provided that the degree of product substitutability is not too low and the wage agreement is not too high. Hence, since economy-wide minimum wage agreements prove to be compatible with the interest of all unions and high-tech firms, the NMWI can be sustained in equilibrium under politically convenient circumstances.     

Trade and unions: Does size matter?

Our empirical analysis builds upon the hypothesis that unions are detrimental to a firm's efficiency. Using a rich survey of German manufacturers, we investigate firm-level determinants on the probability of collective wage bargaining with particular focus on the impact of a firm's engagement in foreign markets. An interesting and very robust finding is that exporters are less likely to engage in union wage bargaining. This finding is in line with a pessimistic perception of unions. The negative effect of collective bargaining can be offset by efficiency gains for larger exporters, who can benefit from operation cost saving effects. Size does matter as larger firms export and may find bargaining with a single entity representing the workforce more convenient than bargaining with each worker individually. We are using firm level information on IT investment as instrument for the export dummy and successfully test for the validity of this instrument.     

Unions,wages and productivity: some evidence from UK engineering firms

Estimates of union wage and productivity effects are derived using primary micro-level panel data for a sample of firms in the UK engineering industry. Union wage differentials of the order of 10% are suggested from the results, whereas union productivity impacts appear to be non-linear with respect to union density.     

INFORMATION SHARING IN UNION–FIRM RELATIONSHIPS*

Large firms often negotiate wage rates with labor unions. When they do, an ex ante agreement to share information should make it more likely that they will reach an agreement and capture the gains from trade. However, if the firm refuses to share information, the union may shade down its wage demand to increase the probability of acceptance. This reduction in the wage can increase the joint surplus of the agents and increase social welfare. As a result, there are some circumstances in which bargaining with incomplete information can be better for the agents and society than bargaining with complete information.     

The impact of trade on employment,welfare, and income distribution in unionized general oligopolistic equilibrium

This paper sets up a multi-sector general oligopolistic equilibrium trade model in which all firms face wage claims of firm-level unions. By accounting for productivity differences across industries, the model features income inequality along multiple lines, including inequality between firm owners and workers as well as within these two groups of agents, and involuntary unemployment. We use this setting to study the impact of trade liberalization on key macroeconomic performance measures. In particular, we show that a movement from autarky to free trade with a fully symmetric partner country lowers union wage claims and therefore stimulates employment and raises welfare. Whether firms can extract a larger share of rents in the open economy depends on the competitive environment in the product market. Furthermore, the distribution of profit income across firm owners remains unaffected, while the distribution of wage income becomes more equal when a country opens up to trade with a fully symmetric trading partner. We also analyze how country size differences and technological dissimilarity of trading partners affect the results from our analysis.     

The Location of Firms in Unionized Countries*

This paper develops a two‐country economic geography model with Cournot competition, where the labor markets are unionized so that trade unions bargain efficiently with each firm over wages and employment. Agglomeration forces are present due to wage premia obtained by the trade unions. It is shown that if the bargaining power of unions differs across countries then, as trade costs are reduced, the country with relatively weak unions gradually acquires all firms. However, for a range of trade costs, it is also a locally stable equilibrium for all firms to locate in the country with strong unions.     

The labor market effects of trade union heterogeneity

Empirical evidence suggests that the bargaining power of trade unions differs across firms and sectors. Standard models of unionization ignore this pattern by assuming a uniform bargaining strength. In this paper, we incorporate union heterogeneity into a Melitz (2003) type model. Union bargaining power is assumed to be firm-specific and varies with firm productivity. This framework allows us to re-analyze the labor market effects of (i) a symmetric increase in the bargaining power of all unions and (ii) trade liberalization. We show that union heterogeneity unambiguously reduces the negative employment effects of stronger unions. Firm-specific bargaining power creates a link between unionization and the entry and exit of firms, implying a reduction of the unions' expected bargaining power. Moreover, union heterogeneity constitutes an (un)employment effect of trade liberalization. If unions are most powerful in the high-productivity (low-productivity) firms, trade liberalization will increase (decrease) unemployment.     

Wage restraint and monetary union

Existing work on wage bargaining predicts more aggressive wage setting under monetary union. This is exemplified by Cukierman and Lippi (2001) who postulate that wages are set having area-wide prices in mind. The insight of aggressive wage behaviour has not been confirmed by the EMU experience, which has been characterised by wage moderation. The present paper investigates the possibility of wage restraint using a monetary union model which, realistically, assumes that trade unions set wages with national prices in mind. Drawing on plausible ranges for all parameter values (and macroeconomic shocks), our simulations show that a monetary union elicits real wages that are broadly comparable to those obtained under monetary autonomy. The confidence bounds around these results are rather wide, in particular including scenarios of wage restraint.     

Union Wage Effects in the Presence of Enterprise Bargaining

Previous research on union wage effects has underestimated the potential for unions to raise member wages since the data used do not enable differences across bargaining units to be properly accounted for. This study addresses this deficiency by utilizing matched employer–employee data that permit workplace-specific union wage effects to be identified. Results from the estimation of wage equations indicate that, while there is only a very small intra-workplace union wage effect, differences across workplaces are considerable. This differential, however, only exists at workplaces where there is substantial coverage by collective agreements.     

Competing wage claims,cost inflation,and capacity utilization

This paper develops a theory of competing wage claims and cost inflation, and attempts to integrate this theory into the core of modern macroeconomic analysis. Specifically, the paper proposes an explanation for wage inertia and wage interdependence based on an application of duopoly theory to labor unions, and incorporates this microeconomic theory of labor union behavior into a macroeconomic general equilibrium model with goods, money, and bonds as well as two kinds of labor. Special emphasis is placed on the interplay between demand and cost factors in the inflation process and on the implications of wage competition among labor unions for the relationship between inflation and unemployment in the short and long run.     

Strategic Delegation of Multiple Tasks

This paper studies both the owner–manager relationship and the union–firm relationship in a model of unionised duopoly to analyse whether a firm's owner delegates the task of wage bargaining to a manager along with the task of output determination. We also analyse the profit and welfare effects of multiple‐task delegation. It has been shown in the literature that, when there is only one delegation task – output determination – delegation of output decisions to managers leads to lower profits for owners than non‐delegation as pure profit‐maximisation. However, when there are two delegation tasks as in our model – output determination and wage bargaining – we show that owners are better off delegating both tasks than delegating only the output decision or not delegating at all. This result provides a rationale and managerial insight for strategically delegating multiple tasks to managers. Moreover, we show that union utility, consumer surplus and social welfare are all higher when owners do not delegate the task of wage bargaining than when they do. This result suggests that governments implement union contracts that require owners, rather than managers, to negotiate wages with unions in order to benefit unions and consumers and to improve social welfare as well.     

UNION–FIRM BARGAINING AGENDA REVISITED: WHEN UNIONS HAVE DISTINCT PREFERENCES

In this paper we revisit the issue of the scope of bargaining between firms and unions by considering a more general union's utility function with distinct preferences and sequential negotiations. First, we compare exogenously given labour market institutions; i.e., right‐to‐manage (RTM) and sequential efficient bargaining (SEB). We show that the conventional wisdom, which states that firms always prefer RTM, no longer holds. In fact, when unions are adequately wage aggressive and have strong enough bargaining power, firms may prefer SEB negotiations; however, firms switch their preference to RTM when unions are very strong. Moreover, we show that a conflict of interest between the parties may emerge when unions are sufficiently employment oriented as well as sufficiently wage aggressive and not too strong or too weak in bargaining. Second, we analyse the endogenous choice of the bargaining agenda. We show that a rich plethora of equilibria may occur and new situations of conflict/agreement of interests between the bargaining parties arise in particular when unions are sufficiently wage‐aggressive.     

THE WAGE IMPACT OF TEACHERS UNIONS: A META‐ANALYSIS

The literature examining the impact of teachers unions on education is very large and diverse. We meta‐analyze the literature on the wage impacts of teachers unions to try to draw out general findings, the importance of empirical model specification, and samples. A key finding of this study is that the average wage impact estimated by the included papers is modest, around 2%–4.5%. Our findings also suggest that the quality of an empirical strategy significantly affects the size of the estimated impact. We find that teachers union wage impacts have varied over time. The largest impacts appear to be following the rapid expansion of teacher unionism in the 1970s. Finally, we gain new insight into the goals of teachers unions by using the increased statistical power of meta‐analytic techniques to show that unions increase the wages of new teachers and not just senior teachers. (JEL J51, I21, I30)