Comparison wage in trade union decision making

Abstract

The starting point of this paper is the idea that trade unions and individual workers pay attention to wage settlements in similar sectors of the economy. The foundations of the concept of comparison wage can be found in other social sciences and also in the literature of psychological economics. Despite the fact, however, that comparison — or reference — wage enters the decision making of the union (i.e. the union utility function), the concept has not received much attention in connection with union decision making. In this paper, a union utility function is employed incorporating the concept of comparison wage. The analysis is conducted in a bargaining framework and the results show the effects on the optimal wage of important variables like comparison wage, unemployment benefit, union power and of the weight that the union places on the comparison wage.