Unions in a frictional labor market

Leena Rudanko and Per Krusell

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We analyze a labor market with search and matching frictions where wage setting is controlled by a monopoly union. Frictions render existing matches a form of firmspecific capital which is subject to a hold-up problem in a unionized labor market. We study how this hold-up problem manifests itself in a dynamic infinite horizon model, with fully rational agents. We find that wage solidarity, seemingly an important norm governing union operations, leaves the unionized labor market vulnerable to potentially substantial distortions due to hold-up. Introducing a tenure premium in wages may allow the union to avoid the problem entirely, however, potentially allowing efficient hiring. Under an egalitarian wage policy, the degree of commitment to future wages is important for outcomes: with full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, and in a Markov-perfect equilibrium, hiring is well below its efficient level both in the short and the long run. We demonstrate the quantitative impact of the union in an extended model with partial union coverage and multi-period union contracting.

Keywords: Labor unions; frictional labor markets; time inconsistency; limited commitment; long-term contracting (search for similar items in EconPapers)
JEL-codes: E24 J51 J64 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-09-18
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://eprints.lse.ac.uk/86277/ Open access version. (application/pdf)

Related works:
Journal Article: Unions in a frictional labor market (2016)
Working Paper: Unions in a frictional labor market (2016)
Working Paper: Unions in a Frictional Labor Market (2015)
Working Paper: Unions in a Frictional Labor Market (2012)
Working Paper: Unions in a Frictional Labor Market (2012)
Working Paper: Unions in a Frictional Labor Market (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:86277

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().