NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Unions in a Frictional Labor Market

Per Krusell, Leena Rudanko

NBER Working Paper No. 18218
Issued in July 2012
NBER Program(s):   EFG   LS

A labor market with search and matching frictions, where wage setting is controlled by a monopoly union that follows a norm of wage solidarity, is found vulnerable to substantial distortions associated with holdup. With full commitment to future wages, the union achieves efficient hiring in the long run, but hikes up wages in the short run to appropriate rents from firms. Without commitment, in a Markov-perfect equilibrium, hiring is too low both in the short and the long run. The quantitative impact is demonstrated in an extended model with partial union coverage and multi- period union contracting.

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This paper was revised on May 6, 2016

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Document Object Identifier (DOI): 10.3386/w18218

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