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The labor market effects of trade union heterogeneity
Institution:1. Universiti Teknologi MARA (UiTM), Faculty of Civil Engineering, Shah Alam 40450, Malaysia;2. Universiti Sains Malaysia, School of Civil Engineering, Nibong Tebal 14300, Malaysia;3. University of Surrey, Department of Civil and Environmental Engineering, Guildford GU27XH, United Kingdom;1. Institute for Agricultural Policy and Market Research, University of Giessen, Senckenbergstr. 3, 35390 Giessen, Germany;2. New York University Shanghai, China;3. Fundação Dom Cabral, Brazil
Abstract: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.
Keywords:Trade unions  Bargaining power  Firm heterogeneity  International trade  Unemployment  F1  F16  J5
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