The effect of unemployment among union members on union wage contracts

Conclusions In this paper a simple modification of union behavior has been suggested. This modification endogenized union preferences by making them depend on the level of unemployment among union members. When placed in the context of a two-sector economy, with a unionized and nonunionized sector and stochastic demand conditions, the model generated realistic patterns of wage and employment outcomes. These outcomes were shown to be critically sensitive to the union's concern with employment versus high wages. To the extent that such concerns are established through organizations, labor market outcomes in economies with a high degree of unionization will depend on the pattern of institutional arrangements as well as underlying economic influences, such as the level of productivity, the level of aggregate demand, and the composition of aggregate demand.