IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v169y2024ics016518892400157x.html
   My bibliography  Save this article

Unions: Wage floors, seniority rules, and unemployment duration

Author

Listed:
  • Alvarez, Fernando
  • Shimer, Robert
  • Tourre, Fabrice

Abstract

This paper examines the impact of unions on unemployment and wages in a dynamic equilibrium search model. We model a union as imposing a minimum wage and rationing jobs to ensure that the union's most senior members are employed. This generates rest unemployment, where following a downturn in their labor market, unionized workers are willing to wait for jobs to reappear rather than search for a new labor market. We characterize the hazard rate of exiting unemployment, and show that it is low at long durations whenever the union-imposed minimum wage is high; we establish that a high union-imposed minimum wage generates a compressed wage distribution and a high turnover rate of jobs — properties consistent with the data. Finally, we show that seniority rules lead to lower unemployment levels, relative to an alternative rule allocating jobs to workers randomly.

Suggested Citation

  • Alvarez, Fernando & Shimer, Robert & Tourre, Fabrice, 2024. "Unions: Wage floors, seniority rules, and unemployment duration," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    • Handle: RePEc:eee:dyncon:v:169:y:2024:i:c:s016518892400157x
    DOI: 10.1016/j.jedc.2024.104965
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016518892400157X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2024.104965?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
    2. Effrosnyi Adamopoulou & Luis Diez-Catalan & Ernesto Villanueva, "undated". "Staggered Contracts and Unemployment During Recessions," CRC TR 224 Discussion Paper Series crctr224_2022_379, University of Bonn and University of Mannheim, Germany.
    3. Böckerman, Petri & Skedinger, Per & Uusitalo, Roope, 2018. "Seniority rules, worker mobility and wages: Evidence from multi-country linked employer-employee data," Labour Economics, Elsevier, vol. 51(C), pages 48-62.
    4. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    5. Starr-McCluer, Martha, 1993. "Cyclical fluctuations and sectoral reallocation : A reexamination," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 417-425, June.
    6. Medoff, James L, 1979. "Layoffs and Alternatives under Trade Unions in U.S. Manufacturing," American Economic Review, American Economic Association, vol. 69(3), pages 380-395, June.
    7. Manudeep Bhuller & Karl Ove Moene & Magne Mogstad & Ola L. Vestad, 2022. "Facts and Fantasies about Wage Setting and Collective Bargaining," Journal of Economic Perspectives, American Economic Association, vol. 36(4), pages 29-52, Fall.
    8. Fernando Alvarez & Robert Shimer, 2011. "Search and Rest Unemployment," Econometrica, Econometric Society, vol. 79(1), pages 75-122, January.
    9. Grossman, Gene M, 1983. "Union Wages, Temporary Layoffs, and Seniority," American Economic Review, American Economic Association, vol. 73(3), pages 277-290, June.
    10. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90, National Bureau of Economic Research, Inc.
    11. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084, Elsevier.
    12. Shigeru Fujita & Giuseppe Moscarini, 2017. "Recall and Unemployment," American Economic Review, American Economic Association, vol. 107(12), pages 3875-3916, December.
    13. Katharine G. Abraham & James L. Medoff, 1984. "Length of Service and Layoffs in Union and Nonunion Work Groups," ILR Review, Cornell University, ILR School, vol. 38(1), pages 87-97, October.
    14. Chinhui Juhn & Kevin M. Murphy & Robert H. Topel, 1991. "Why Has the Natural Rate of Unemployment Increased over Time?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 75-142.
    15. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
    16. Joseph S. Tracy, 1986. "Seniority Rules and the Gains from Union Organization," NBER Working Papers 2039, National Bureau of Economic Research, Inc.
    17. Lawrence F. Katz & Bruce D. Meyer, 1990. "Unemployment Insurance, Recall Expectations, and Unemployment Outcomes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(4), pages 973-1002.
    18. Gilles Mourre, 2005. "Wage compression and employment in Europe: First evidence from the structure of earnings survey 2002," European Economy - Economic Papers 2008 - 2015 232, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    19. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernando Alvarez & Robert Shimer, 2011. "Search and Rest Unemployment," Econometrica, Econometric Society, vol. 79(1), pages 75-122, January.
    2. repec:eee:labchp:v:3:y:1999:i:pc:p:2985-3028 is not listed on IDEAS
    3. Winfried Koeniger & Marco Leonardi & Luca Nunziata, 2007. "Labor Market Institutions and Wage Inequality," ILR Review, Cornell University, ILR School, vol. 60(3), pages 340-356, April.
    4. Aidt, T.S. & Tzannatos, Z., 2005. "The Cost and Benefits of Collective Bargaining," Cambridge Working Papers in Economics 0541, Faculty of Economics, University of Cambridge.
    5. Castro, Rui & Lange, Fabian & Poschke, Markus, 2024. "Labour force transitions," CLEF Working Paper Series 78, Canadian Labour Economics Forum (CLEF), University of Waterloo.
    6. Maximiliano Dvorkin, 2013. "Sectoral Shocks, Reallocation and Unemployment in a Model of Competitive Labor Markets," 2013 Meeting Papers 1229, Society for Economic Dynamics.
    7. Tito Boeri & Jan van Ours, 2013. "The Economics of Imperfect Labor Markets: Second Edition," Economics Books, Princeton University Press, edition 1, number 10142.
    8. Eriksson, Stefan & Gottfries, Nils, 2005. "Ranking of job applicants, on-the-job search, and persistent unemployment," Labour Economics, Elsevier, vol. 12(3), pages 407-428, June.
    9. Axtell, Robert L. & Guerrero, Omar A. & López, Eduardo, 2016. "The Network Composition of Aggregate Unemployment," MPRA Paper 68962, University Library of Munich, Germany.
    10. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    11. Fanfani, Bernardo, 2023. "The employment effects of collective wage bargaining," Journal of Public Economics, Elsevier, vol. 227(C).
    12. Jochen Mankart & Rigas Oikonomou, 2017. "Household Search and the Aggregate Labour Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 84(4), pages 1735-1788.
    13. Nobuhiro Kiyotaki & Ricardo Lagos, 2007. "A Model of Job and Worker Flows," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 770-819, October.
    14. Christopher A. Pissarides, 2003. "Unemployment in Britain: A European Success Story," CESifo Working Paper Series 981, CESifo.
    15. Yolanda Kodrzycki, 2007. "Using unexpected recalls to examine the long-term earnings effects of job displacement," Working Papers 07-2, Federal Reserve Bank of Boston.
    16. Tan Wang & Tony S. Wirjanto, 2016. "Risk Aversion, Uncertainty, Unemployment Insurance Benefit and Duration of "Wait" Unemployment," Annals of Economics and Finance, Society for AEF, vol. 17(1), pages 1-34, May.
    17. Herrendorf, Berthold & Rogerson, Richard & Valentinyi, Ákos, 2014. "Growth and Structural Transformation," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 855-941, Elsevier.
    18. Kondo, Illenin O., 2018. "Trade-induced displacements and local labor market adjustments in the U.S," Journal of International Economics, Elsevier, vol. 114(C), pages 180-202.
    19. Almeida, Rita & Carneiro, Pedro, 2006. "Enforcement of Regulation, Informal Labour, Firm Size and Firm Performance," CEPR Discussion Papers 5976, C.E.P.R. Discussion Papers.
    20. Almeida, Rita K. & Carneiro, Pedro, 2005. "Enforcement of Regulation, Informal Labor and Firm Performance," IZA Discussion Papers 1759, Institute of Labor Economics (IZA).
    21. Yashiv, Eran, 2007. "Labor search and matching in macroeconomics," European Economic Review, Elsevier, vol. 51(8), pages 1859-1895, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:169:y:2024:i:c:s016518892400157x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.