Abstract
In this paper we investigate the effect of increased competition on employment in unionised and non-unionised firms. We model product and labour market imperfections, and their interactions, in Nash equilibrium. The model predicts that employment loss in unionised firms in the face of increased competition will be lower compared with non-unionised firms. This paradoxical outcome results from an offsetting beneficial employment effect of competition, which eliminates wage mark-ups in unionised firms. We find empirical support for the theoretical prediction using U.K. firm level data over the period 1985-1989.
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