Unions as Commitment Devices: Strong Unions are Welcome

Kyota Eguchi
Additional contact information
Kyota Eguchi: Faculty of Economics, University of Tokyo.

No CIRJE-F-46, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Under incompleteness of contracts, we consider one role of unions to be as a commitment device. When wage and dismissal rate contingent on the states are not described in labor contracts, although a wage offer is verifiable, the firm cannot promise to keep employment ex ante and cannot make employees believe the promise of job security. Thus, the firm must offer a high wage to encourage workers in accumulating skills. However, if strong unions exist and resist the firm's dismissal policy, unions can play a significant role as commitment devices for job security. Then, since the firm can decrease wage and increase employment level, we can expect the profit of the firm with the strong union to be more than that without a union. Therefore, strong unions would be welcome. Furthermore, we consider the possibility of wage adjustment as renegotiation in a recession, and show that wage adjustment occurs in slightly severe recessions, but that under severe recessions dismissal of employees cannot be avoided.

Pages: 38 pages
Date: 1999-04
New Economics Papers: this item is included in nep-lab and nep-mic
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cirje.e.u-tokyo.ac.jp/research/dp/99/cf46/contents.htm (text/html)

Related works:
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:tky:fseres:99cf46

Access Statistics for this paper

More papers in CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo Contact information at EDIRC.
Bibliographic data for series maintained by CIRJE administrative office ().