The Economic Behavior of Trade Unions

Alison Booth

No 670, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: A trade union is an organized association of workers formed for the protection and promotion of their common interests. The standard view of unions is that they are monopoly organizations that improve the welfare of members, principally by raising wages above the competitive level. For a union to be able to increase wage rates above the competitive level, there must be some surplus that can be shared between the firm and the union, and the union must have some bargaining power to induce the firm to share this surplus. This article investigates the conditions under which a union can increase wages, and explores ways of modeling the competing preferences of unions and management. The article also notes the arguments suggesting that, in the presence of imperfect information and uncertainty, unions may enhance efficiency. To the extent that unions reduce labor turnover and negotiating costs, they may increase the available surplus to be shared between parties.

Date: 2012-10
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