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The labor market effects of trade union heterogeneity

Marco de Pinto and Jochen Michaelis

Economic Modelling, 2019, vol. 78, issue C, 60-72

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 (search for similar items in EconPapers)
JEL-codes: F1 F16 J5 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.econmod.2018.08.017

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