Working Paper: CEPR ID: DP1399
Authors: Kaiuwe Kuhn; A Jorge Padilla
Abstract: In this paper we develop a theory of union bargaining power based on firm-specific skills acquired by the insider work-force. We show that unions increase the bargaining power of insiders only in states of the world in which the firm would like to retain insiders but not hire outsiders. Union formation leads to inefficient retention of workers in the firm. Furthermore, new workers are hired at wages below the going market rate. Union power may either increase or decrease the amount of hiring of the firm, however. This paper can thus be understood as developing an insider-outsider theory in which harrassment or discrimination of new workers by the insider work-force is neither individually rational nor needed to explain inefficient hiring decisions or union formation.
Keywords: bargaining; insider-outsider theory; quits; unions; underemployment; wage determination
JEL Codes: J30; J41; J51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| union power (J51) | bargaining power of insiders (G34) |
| bargaining power of insiders (G34) | inefficient retention of workers (J63) |
| union presence (J51) | inefficient retention of workers (J63) |
| unions (J51) | misalignment between hiring practices and labor allocation (J68) |
| union membership dynamics (J51) | increased hiring (J23) |
| union membership dynamics (J51) | decreased hiring (J63) |
| external labor market conditions (J29) | union effects on hiring decisions (J51) |
| union power (J51) | overemployment (J23) |
| union power (J51) | underemployment (J64) |