Cost-Benefit Analysis Of Union Membership Without Collective Bargaining Benefits

Traditional unions rely on collective bargaining benefits to attract workers to the union. A key ingredient of collective bargaining benefits is union wage premium which will force employers to retrench some workers. A macro-focused union differs from traditional union or micro-focused union in two ways. First, a macro-focused union will work together with the government and management to raise productivity and therefore shift the demand for labor curve upward. Second, the macro-focused union will want to maximize employment and therefore aim at competitive wage level for not only its members but non-union members too. Consequently, this may create a huge free ridership problem as workers may refuse to pay the member fee but still enjoy the club benefits. This paper focuses on a situation where a macro-focused labor union offers non-collective bargaining benefits through offering discount to a subset of consumption goods. However, individual workers’ preference is not publicly observed. The union leader may pay a certain survey fee to find out. Therefore, in the equilibrium, the union leader needs to weigh the benefits of larger union size against the costs of survey fee. Similarly, on the workers’ side, the tradeoff is the union member fee together with some psychology cost of being a union member against a discount on his favorable consumption goods. We develop a mathematical framework that incorporates all these elements above. We show both theoretically and quantitatively what determines the equilibrium union size and union leader’s survey decisions. Moreover, we also examine at the aggregate level, how the union workers’ and union leader’s welfare levels may respond to certain changes in economic fundamentals, such as preference shift and changes in survey fee, etc.