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The Economic Behavior of Trade Unions

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  • Alison Booth

Abstract

A trade union is an organized association of workers formed for the protection and promotion of their common interests. The standard view of unions is that they are monopoly organizations that improve the welfare of members, principally by raising wages above the competitive level. For a union to be able to increase wage rates above the competitive level, there must be some surplus that can be shared between the firm and the union, and the union must have some bargaining power to induce the firm to share this surplus. This article investigates the conditions under which a union can increase wages, and explores ways of modeling the competing preferences of unions and management. The article also notes the arguments suggesting that, in the presence of imperfect information and uncertainty, unions may enhance efficiency. To the extent that unions reduce labor turnover and negotiating costs, they may increase the available surplus to be shared between parties.

Suggested Citation

  • Alison Booth, 2012. "The Economic Behavior of Trade Unions," CEPR Discussion Papers 670, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    • Handle: RePEc:auu:dpaper:670
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    File URL: https://www.cbe.anu.edu.au/researchpapers/CEPR/DP670.pdf
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    References listed on IDEAS

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    1. Farber, Henry S, 1978. "Individual Preferences and Union Wage Determination: The Case of the United Mine Workers," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 923-942, October.
    2. Booth,Alison L., 1994. "The Economics of the Trade Union," Cambridge Books, Cambridge University Press, number 9780521468398.
    3. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    4. Stewart, Mark B, 1990. "Union Wage Differentials, Product Market Influences and the Division of Rents," Economic Journal, Royal Economic Society, vol. 100(403), pages 1122-1137, December.
    5. Alison L. Booth, 1985. "The Free Rider Problem and a Social Custom Model of Trade Union Membership," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 253-261.
    6. Douglas H. Blair & David L. Crawford, 1984. "Labor Union Objectives and Collective Bargaining," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(3), pages 547-566.
    7. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, April.
    8. Faith, Roger L. & Reid, Joseph Jr., 1987. "An agency theory of unionism," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 39-60, March.
    9. McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
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    Citations

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    Cited by:

    1. Jo Blanden & Stephen Machin, 2003. "Cross‐Generation Correlations of Union Status for Young People in Britain," British Journal of Industrial Relations, London School of Economics, vol. 41(3), pages 391-415, September.
    2. Isabelle Terraz, 2016. "Economic Growth: The Case of Irreversibility of Investment with Bargaining Power of Workers," International Economic Journal, Taylor & Francis Journals, vol. 30(1), pages 75-86, March.
    3. Alex Bryson & Lorenzo Cappellari & Claudio Lucifora, 2004. "Does Union Membership Really Reduce Job Satisfaction?," British Journal of Industrial Relations, London School of Economics, vol. 42(3), pages 439-459, September.
    4. Jukka Lassila, 2000. "Wage formation by majority voting and the incentive effects of pensions and taxation," Finnish Economic Papers, Finnish Economic Association, vol. 13(2), pages 89-115, Autumn.
    5. Stephen Machin, 2004. "Factors of Convergence and Divergence in Union Membership," British Journal of Industrial Relations, London School of Economics, vol. 42(3), pages 423-438, September.
    6. Emmanuel Petrakis & Minas Vlassis, 2004. "The Political Economy of the “Minimum‐Wage Institution” in an Internationally Integrated Market," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 27-40, February.

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