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Unions: Wage floors, seniority rules, and unemployment duration

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  • 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
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