Unions in a Frictional Labor Market
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.
We are grateful toMarina Azzimonti, Matteo Cacciatore, Steve Davis, Fatih Guvenen, William Hawkins, Patrick Kehoe, John Kennan, Guido Menzio, Fabien Postel-Vinay, Victor Rios-Rull, Robert Shimer, seminar and conference audiences, as well as the editor and referee for comments. Rudanko thanks the Hoover Institution for its hospitality and financial support, and the Fulbright Program for financial support. Financial support from the NSF is gratefully acknowledged. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Per Krusell & Leena Rudanko, 2016. "Unions in a frictional labor market," Journal of Monetary Economics, vol 80, pages 35-50. citation courtesy of