Institutional Economics and the Theory of What Unions Do

Abstract

The theory of trade unions is re-examined using principles and ideas of institutional economics. An institutional perspective provides a more balanced and inclusive portrait of what unions do; it also demonstrates flaws and biases in the standard neoclassical account that lead to overly negative conclusions. Unions can either be “monopsony-reducing” or “monopolycreating” in their economic and governance functions and may thus in some situations improve economic performance and welfare but it others harm them. The “optimal” level of union density depends on the breadth and depth of market and governance failures and an assessment of the feasibility, benefits and costs of alternative institutional solutions to labor problems.