On the Role of Regulation in Union - Employer Bargaining

This paper provides some analysis of microeconomic criteria for the regulation of union - employer wage bargaining in the context of a decentralised wage determination system. Using a simple model, where the employer has monopoly power in the product market, it is shown that an efficient collusive bargain struck between union and employer will benefit the consumer. This result holds under quite weak assumptions about the objectives of the union. Under not unreasonable assumptions about the nature of union objectives, the collusive bargaining outcome will be better for the consumer them removing the monopoly power of the employer while the monopoly power of the union remains. The implication for wages policy is that rather than proscribe collusive bargaining between a union and an employer with monopoly power, regulation should assist such bargaining as there are social benefits.