On The Interaction Between Efficiency Wages And Union Firm Bargaining Models

This thesis proposes and analyzes micro-theoretic models of the strategic interaction between heterogeneous workers and a union, and that between a firm and a union. We assume union membership increases the bargaining power of the workers, but decreases their productivity. The workers and the firm produce a surplus. The union bargains on behalf of all workers, trying to maximize their surplus, which is a share of the total surplus. This thesis focuses on studying equilibria in which the least productive workers join the union, but the most productive workers do not. For each model, we show that such an equilibrium exists, is unique, and is robust to coalitional deviations. We find expressions for the equilibrium union size, union density, the wages of union and non-union workers, the surplus and profit of the firm, and the respective bargaining powers of the workers and the firm. The models' comparative statics are also studied. Equilibrium variables are compared across the models to gain insight into the union's preferences on performance related pay. We also study how differences in the workers' productive levels affect their incentives to join the union. The most striking result that holds across the models is that the firm's surplus and profit can sometimes increase with the inefficiency coefficient of the union. This suggests there can exist situations where firms have a perverse incentive to make union workers less efficient compared to non-union workers. We also find that union membership and salaries decrease with the inefficiency coefficient of the union. This suggests that unionized workers always prefer to be as efficient as their non-unionized colleagues. We find that union wages are generally lowest when they are linked to a worker's output, suggesting that unions may have incentives to oppose performance related pay for their members.

This paper examines the impact of unionization on profit- ability, growth and productivity using time series data on over 900 product line businesses in the North American manufacturing sector (predominantly U.S.). The first section of the paper develops a simple theoretical framework for studying the effect of the union on firm performance. A key result of this analysis is that information about union wage and productivity effects is not sufficient to permit prediction of the sign (or magnitude) of consequent changes in the rate of return on capital; one must know the parameters of production and demand. Expanding the model to allow for the effects of market structure and alternative bargaining regimes establishes the need to examine several indicators of firm performance in assessing the impact of the union. The empirical analysis reveals sizeable negative union effects on profitability, but growth, productivity and the capital-labor ratio appear to be little affected by unionization in this data. The data are thus consistent with a model of union-firm interaction in which collective bargaining affects the distribution of profits, but leaves real magnitudes unchanged. The evidence suggests, however, that unionization may have longer term implications for efficiency since the impact on profitability appears to fall most heavily on firms with relatively little market power.

This paper presents structural estimates for a bargaining model which nests the right-to-manage, the efficient wage bargaining, the seniority and the standard neoclassical labor demand model as special cases. In contrast to most existing models, our approach accounts for heterogeneous skill groups which differ in terms of productivity and representation in the bargaining process through union preferences. The paper introduces the concept of quot;virtualquot; firms which allows us to (i) test the efficient contract model against models implying that firms operate on the labor demand curve and to (i) overcome a potential misspecification of firms' output markets. Estimates of structural parameters are obtained from a novel cross-section of German firms of the business related service sector which includes information on skill-specific wage rates at the firm level. Central results of this paper are that unions do care about both wages and employment in the bargaining process and that firms operate on the contract curve. The bargaining power of unions in East Germany turns out to be much weaker than in West Germany.