Wage Bargaining, Employment, and Union Power: The Right-to-Manage Approach

This chapter analyzes the implications of right-to-manage wage bargaining between a producers’ syndicate and a workers’ union representing finite numbers of identical members in a monetary macroeconomic model of the AS–AD type with a government sector and fiat money. At given prices and price expectations, nominal wages are set according to a Nash bargaining agreement. Given the bargaining wage, producers maximize profits at given output prices. The commodity market is cleared in a competitive fashion. Unique temporary equilibria exist for each level of union power. They exhibit underemployment or overemployment, depending on union power. The chapter presents a complete comparative-statics analysis of the role of union power on equilibrium levels of employment, wages, and income distribution, a variety of qualitative features with the situation under efficient bargaining. These differences arise primarily from a supply-side effect of union power under the right-to-manage approach as compared to a demand-side effect under efficient bargaining. The chapter concludes with an analysis of the dynamics under perfect foresight. This is monotonic (noncyclical) with two coexisting balanced steady states, one of which is stable under certain conditions. These properties are qualitatively equivalent to those under efficient bargaining or under perfect competition, cf. Chap. 2 .